Q4 2023 Kohls Corp Earnings Call

Operator: Good morning, my name is Audra, and I will be your conference operator. At this time, I would like to welcome everyone to the Kohls Corporation fourth quarter 2023 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.

Good morning, My name is Audrey and I will be your conference operator today.

Audrey: At this time I would like to welcome everyone to the Kohl's Corporation fourth quarter 2023 earnings Conference call. Today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. At this time, I would like to turn the conference over to Mark Rupe, Senior Vice President, Investor Relations, and Treasurer. Go ahead. Thank you. Certain statements made on this call, including projected financial results and the company's future initiatives, are 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 forwards. Such risks and uncertainties include, but are not limited to:

Audrey: Pat if you would like to withdraw your question Press Star one again.

Audrey: At this time I would like to turn the conference over to Mark Rupe, Senior Vice President Investor Relations and Treasurer. Please go ahead.

Mark Andrew Rupe: Thank you.

Mark Andrew Rupe: Certain statements made on this call, including projected financial results and the company's future initiatives are forward looking statements.

Mark Andrew Rupe: Such statements are subject to certain risks and uncertainties.

Mark Andrew Rupe: Which could cause kohl's actual results to differ materially from those projected in such forward looking statements.

Mark Andrew Rupe: Such risks and uncertainties include but are not.

Mark Andrew Rupe: Not limited to those that are described in item <unk> in Kohl's. Most recent annual report on Form 10-K.

Mark Andrew Rupe: Those that are described in Item 1A in Kohl's most recent annual report on Form 10-K, and as may be supplemented from time to time in Kohl's other filings with the SEC, all of which are expressly incorporated herein by reference. Forward-looking statements relate to the date initially made, and Kohls undertakes no obligation to update.

Mark Andrew Rupe: And as may be supplemented from time to time in Kohl's other filings with the SEC.

Mark Andrew Rupe: All of which are expressly incorporated herein by reference.

Mark Andrew Rupe: Forward looking statements relate to the date initially made and Kohl's undertakes no obligation to update them.

Mark Andrew Rupe: Today's call will reference material included in an investor presentation and included as an exhibit to our Form 8K, filed with the SEC, which is available on the Company's Investor Relations website. In addition, during this call, we may make reference to non-GAAP financial... Reconciliation of non-GAAP financial measures can also be found, and the aforementioned investors. Please note that this call will be recorded. However, replays of this call will not be. If you're listening to a replay of this call, it is possible that the information discussed is no longer current.

Mark Andrew Rupe: Today's call will reference material included in the Investor presentation included as an exhibit to our form 8-K furnished to the SEC.

Mark Andrew Rupe: Which is available on the company's Investor Relations website.

Mark Andrew Rupe: In addition, during this call we may make reference to non-GAAP financial measures.

Mark Andrew Rupe: Reconciliation of non-GAAP financial measures can also be found in the.

Mark Andrew Rupe: The aforementioned investor presentation.

Mark Andrew Rupe: Yes.

Mark Andrew Rupe: Please note that this call will be recorded however.

Mark Andrew Rupe: However, replays of this call will not be updated.

Mark Andrew Rupe: If you're listening to a replay of this call. It is possible that the information discussed is no longer current.

Thomas A. Kingsbury: Kohls undertakes no obligation to update such information. With me this morning are Tom Kingsbury, our CEO, and Jill Timm, our Chief Financial Officer. I will now turn the call over to Tom. Thank you, Mark, and good morning, everyone. Our fourth quarter performance capped off an important year for Kohl's, as we've discussed throughout 2023. Our company has undergone a significant amount of change across the business as part of our efforts to strategically reposition Kohl's for growth in 2024 and beyond. During the year, we assembled a largely new leadership team, and enhanced our store experience.

Mark Andrew Rupe: <unk> undertakes no obligation to update such information.

Mark Andrew Rupe: With me. This morning are Tom Kingsbury, our CEO and Jill Timm, our Chief Financial Officer.

Thomas A. Kingsbury: I will now turn the call over to Tom.

Thomas A. Kingsbury: Thank you Mark and good morning, everyone.

Thomas A. Kingsbury: Our fourth quarter performance capped off an important year for Kohl's.

Thomas A. Kingsbury: As we've discussed throughout 2023.

Thomas A. Kingsbury: Our company has undergone a significant amount of change across the business as part of our efforts to strategically reposition calls for growth in 2024 and beyond.

Thomas A. Kingsbury: During the year, we assembled a largely new leadership team enhanced our store experience expanded our partnership with Sephora and.

Thomas A. Kingsbury: We've expanded our partnership with Sephora, invested in underpenetrated categories, and adjusted our go-to-market strategies in existing categories, such as rebalancing assortments across all lifestyles. In addition, we made further progress in simplifying how we deliver value to our customers and embedded new inventory management processes. Through all of this change, we stayed focused and executed against each of our four strategic priorities, which are Enhancing the customer experience, Accelerating and Simplifying Our Value Strategies, Managing Inventory and Expenses with Discipline, and Further Strengthening our Balance Sheet. The early success of our strategies is evident. In fact, our store business had its best comparable sales performance since 2020. The four at Kohls continued to drive meaningful beauty sales growth.

Thomas A. Kingsbury: Invested in Underpenetrated categories, and adjusted our go to market strategies and existing categories, such as rebalancing assortments across all lifestyles. In addition, we made further progress in simplifying how we deliver value to our customers and embedded new inventory management processes.

Thomas A. Kingsbury: Through all of this change we stayed focused and executed against each of our four strategic priorities, which are.

Thomas A. Kingsbury: Enhancing the customer experience.

Thomas A. Kingsbury: Accelerating and simplifying our value strategies man.

Thomas A. Kingsbury: Managing inventory and expenses with discipline and further strengthening our balance sheet.

Thomas A. Kingsbury: The early success of our strategies.

Thomas A. Kingsbury: <unk>.

Thomas A. Kingsbury: Our store business had its best comparable sales performance since 2010.

Thomas A. Kingsbury: Sephora It calls continue to drive meaningful beauty sales growth, we managed inventory down 10% at year end and we delivered 2023 earnings ahead of our expectations.

Thomas A. Kingsbury: We managed inventory down 10% at year-end, and we delivered 2023 earnings ahead of our expectations. I want to thank the broader Kohls team for adapting to new ways of working and driving significant change across the organization. They accomplished a great deal in 2023, and while there is more work to be done, I am confident, through our collective efforts, Kohls is becoming more relevant. Looking ahead to 2024, we are incredibly focused on driving growth. We are expecting comparable sales to be in the range of flat to up 2%.

Thomas A. Kingsbury: I want to thank the broader coles team for adapting to new ways of working and for driving significant change across the organization.

Thomas A. Kingsbury: <unk> a great deal in 2023, and while there is more work to be done I am confident that through our collective efforts calls is becoming more relevant to customers.

Thomas A. Kingsbury: Looking ahead to 2024, we are incredibly focused on driving growth.

Thomas A. Kingsbury: We are expecting comparable sales to be in the range of flat to up 2%.

Thomas A. Kingsbury: The key drivers of comp growth in 2024 will be continued growth in Sephora and Ed Kohl's, which will represent over 10% of our net sales for the year. Incremental sales from our Home, Gifting, and Impulse initiatives. The initial sales benefit from our partnership with Babies R Us, through which we will meaningfully expand our presence in the Baby Gear category.

Thomas A. Kingsbury: Key drivers of comp growth in 2024 will be continued growth in sephora at Kohl's.

Which will represent over 10% of our net sales for the year.

Thomas A. Kingsbury: Incremental sales from our home gifting and impulse initiatives.

Thomas A. Kingsbury: The initial sales benefit from our partnership with babies R us through which we will meaningfully expand our presence in the baby gear category.

Thomas A. Kingsbury: The scaling of our key value initiative, which is high volume pricing across our private brands building off the success of our tests last fall.

Thomas A. Kingsbury: Scaling our key value, which is high-volume pricing across our private brands, building off the success of our tests last fall, and improving performance across our apparel and footwear assortment, as our efforts to increase relevance come to life in our existing brands, as well as new, from a profitability perspective. Jill will discuss in more detail, but we expect strong inventory management to drive further gross margin expansion in 2024, and we plan to continue to benefit from disciplined expense management. That said, we have embedded the potential impact of the recent CFPB Late Fee Ruling into our 2024 Outlook, which will serve as a headwind in the back half of this year.

Thomas A. Kingsbury: And the improved performance across our apparel and footwear assortment as our efforts to increase relevance come to life in our existing brands as well as new brands.

Thomas A. Kingsbury: From a profitability perspective, as Joe will discuss in more detail, we expect strong inventory management to drive further gross margin expansion in 2024 and.

And we plan to continue to benefit from disciplined expense management.

Thomas A. Kingsbury: That said, we have embedded the potential impact of the recent C. P.

Thomas A. Kingsbury: T B late the ruling into our 2024 outlook, which will serve as a headwind in the back half of this year.

Thomas A. Kingsbury: I will discuss our strategic priorities in greater detail in a moment, but first, let me touch on our fourth-quarter results. Net sales decreased 1.1% in Q4 and comparable sales, which exclude sales from the 53rd week, decreased 4.3%. The holiday period started off mixed, with November being the weakest month in the quarter, due in part to warmer weather.

Thomas A. Kingsbury: I will discuss our strategic priorities in greater detail in a moment, but first let me touch on our fourth quarter results.

Thomas A. Kingsbury: Okay.

Thomas A. Kingsbury: Net sales decreased one 1% in Q4 and comparable sales, which exclude sales from the 50 <unk> week decreased four 3%.

Thomas A. Kingsbury: The holiday period started off mix with November being the weakest month in the quarter due in part to warmer weather.

Thomas A. Kingsbury: December comparable sales were flat with last year, and January sales were down as we lapped elevated clearance activity from the prior year. However, January was better than our plan. Another positive was that we drove increased regular price sales in December and January through the delivery of transitional goods. From a channel perspective, our stores continue to outperform. We saw continued strong results from Sephora, as well as our initiatives in holiday gifting and home decor. Digital sales, excluding the 53rd week, were down approximately 10% in the quarter, but they improved as the quarter progressed.

Thomas A. Kingsbury: December comparable sales were flat to last year and January sales were down as we lapped elevated clearance activity from the prior year. However January was better than our plan.

Thomas A. Kingsbury: Another positive was that we drove increased regular priced sales in December and January through the delivery of transitional goods.

Thomas A. Kingsbury: Okay.

Thomas A. Kingsbury: From a channel perspective.

Thomas A. Kingsbury: Our stores continued to outperform with stores comparable sales down 1% in Q4, we saw continued strong results from sephora as well as our initiatives in holiday gifting and home decor.

Thomas A. Kingsbury: Digital sales, excluding the 50 <unk> week were down approximately 10% in the quarter How's.

Thomas A. Kingsbury: However, improved as the quarter progressed.

Thomas A. Kingsbury: Beyond the top line, we were able to successfully manage gross margin and expenses to achieve an operating margin of 5% in Q4 and 4.1% for the full year, slightly ahead of our guidance outlook. Let me now turn to our longer-term initiatives and provide an update on our four strategic priorities. Our first priority is enhancing the customer experience. This priority encompasses all the work we've done to enhance our store experience, including expanding the number of locations with Sephora. It also includes our work to drive growth in underpenetrated and new categories and our efforts to become more relevant in our apparel and footwear offering. Let me start with stores, the cornerstone of our business. We recognize that for us to grow sustainably over the long term, we need to increase our store sales productivity. In 2023, we re-established STORRS as a key focal point of our strategy, which consisted of leadership's time and attention, meaningful investments, and new operational processes.

Thomas A. Kingsbury: Beyond the top line, we're able to successfully manage gross margin and expenses to achieve an operating margin of 5% in Q4 and four 1% for the full year slightly ahead of our guidance outlook.

Speaker Change: Let me now turn to our longer term initiatives and provide an update on our four strategic priorities.

Speaker Change: Our first priority is enhancing the customer experience.

Speaker Change: This priority encompasses all the work we've done to enhance our store experience, including expanding the number of locations with sephora.

Speaker Change: It also includes our work to drive growth in Underpenetrated in new categories, and our efforts to become more relevant in our apparel and footwear offerings.

Speaker Change: Let me start with stores the cornerstone of our business.

Speaker Change: We recognize that for us to grow sustainably over the long term, we need to increase our store sales productivity.

Speaker Change: In 2023, we reestablished stores is a key focal point of our strategy, which consisted of leadership time and attention meaningful investments and new operational processes.

Thomas A. Kingsbury: We have expanded and repositioned our gifting assortment to the front of the store, simplified our in-store signage and graphics, consolidated the customer checkout area, enhanced our overall merchandising offering, and empowered our stores to capitalize on opportunities to drive sales in their local markets. These actions are beginning to resonate with our customers. Comparable sales were flat in 2023, our best performance since 2010.

Speaker Change: We expanded and repositioned our gifting assortment to the front of the store <unk>.

Speaker Change: Simplified our in store signage and graphics consolidated the customer checkout area enhanced our overall merchandising offering and empowered our stores to capitalize on opportunities to drive sales in their local markets.

Speaker Change: These actions are beginning to resonate with our customers store comparable sales were flat in 2023, our best performance since 2010.

Thomas A. Kingsbury: In 2024, we will build on our momentum with a variety of store-focused initiatives. These will include new merchandising strategies and the rollout of queueing lines to more than one-third of our stores. We also remain focused on returning our digital business to growth. Our focus this year is on reinforcing value simplification in all communications.

Speaker Change: In 2024, we will build on our momentum with a variety of store focus initiatives.

Speaker Change: These will include new merchandising strategies, and the rollout of queuing lines to more than one third of our stores.

Speaker Change: We also remain focused on returning our digital business to growth.

Speaker Change: Our focus this year is on reinforcing value simplification in our communication and scaling new targeting initiatives as well as improving the search and product recommendation capabilities of our site to drive increased traffic and higher conversion.

Thomas A. Kingsbury: Scaling the New Targeting Initiative, as well as improving the search and product recommendation capabilities of our site to drive increased traffic and higher conversions. Let me now turn to Sephora at Kohls, which continues to deliver exceptional results. 2023 was truly a breakout year for our partnership with Sephora. We delivered more than $1.4 billion in sales, which was up more than 90% year-on-year and included greater than 25% comparable beauty sales growth in the shops opened in 2021 and 2022. The Q4 Sephora sales increased more than 70%, and comparable sales growth was nearly 25%, which was on top of strong growth in the prior year. We ended the year with a Sephora presence in 910 of our stores, with 860 large format and 50 smaller format shots.

Speaker Change: Let me now turn to Sephora at Kohl's, which continues to deliver exceptional results.

Speaker Change: 2023 was truly a breakout year for our partnership with Sephora.

Speaker Change: We delivered more than one $4 billion in sales.

Speaker Change: Which was up more than 90% year on year and included greater than 25% comparable beauty sales growth in the shops opened in 2021 and 2022.

Speaker Change: For Q4 support sales increase more than 70% and comparable sales growth was nearly 25% which was on top of a strong growth in the prior year.

Speaker Change: We ended the year with a support presence and 910 of our stores.

Speaker Change: With 860 large format and 50 smaller format shops.

Thomas A. Kingsbury: We are pleased with the consistent strong performance we have seen across both formats. In 2024, we'll further expand our partnership, opening approximately 140 smaller format shops. And in 2025, we will roll out a Sephora presence to the balance of the Kohl's stores. Taking a step back.

Speaker Change: We are pleased with our consistent strong performance, we've seen across both formats.

In 2024, we will further expand our partnership opening approximately 140 smaller format shops.

Speaker Change: And in 2025, we will rollout of sephora presence to the balance of the cold chain.

Speaker Change: Taking a step back it is quite impressive what we've been able to accomplish with sephora.

Thomas A. Kingsbury: It's quite impressive what we've been able to accomplish with Sephora. They are a great partner, and our teams have worked tirelessly over the past three years to position ourselves for this success. Based on our current trajectory, we now believe that we'll surpass our previously shared goal of $2 billion in sales by 2020. I want to now transition to our efforts to meaningfully increase our sales in underpenetrated categories. We've talked a lot about our efforts across HOME, Gifting, and Impulse during 2023. And this year, we are partnering with Babies R Us to meaningfully expand our presence in the baby category, which is a compelling white space opportunity. Collectively, we see these underpenetrated categories as more than a $2 billion sales opportunity over the next several years. Let me share some details on each of these distinct opportunities.

Speaker Change: They are a great partner and our teams have worked tirelessly over the past three years to position ourselves for this success.

Speaker Change: Based on our current trajectory, we now believe that we will surpass our previously shared goal of $2 billion in sales by 2025.

Speaker Change: I want to now transition to our efforts to meaningfully increase our sales and underpenetrated categories.

Speaker Change: We've talked a lot about our efforts across home gifting and impulse during 2023.

Speaker Change: And this year, we are partnering with babies R us to meaningfully expand our presence in the baby category, which is a compelling white space opportunity for Kohl's.

Speaker Change: Collectively we see these underpenetrated categories as more than $2 billion sales opportunity over the next several years.

Speaker Change: Let me share some details on each of these distinct opportunities.

Thomas A. Kingsbury: I am excited that Kohls will expand its offering of baby gear and accessories through an exclusive license agreement with Babies R Us in the U.S. This partnership provides a significant growth opportunity in a large category that has been displaced in recent years and builds on our existing assortment while broadening our reach with younger shoppers. To capitalize on the opportunity, we plan to open Baby Sour Up shops and approximately 200 Kohl's stores in the fall of 2021. Shops will include baby gear, accessories, and furniture, complementing our existing infant and toddler departments. Shops will vary in size, with the majority being 1,500 square feet.

Speaker Change: I am excited that Coles will expand our offering of baby gear and accessories through an exclusive license agreement with babies R. Us in the U S.

Speaker Change: This partnership provides a significant growth opportunity in a large category that has been displaced in recent years and builds on our existing assortment, while broadening our reach with younger customers.

Speaker Change: To capitalize on the opportunity we plan to open babies are up shops in approximately 200 kohls stores in fall of 2024.

Speaker Change: The shops will include baby gear accessories, and furniture complimentary to our existing infant and toddler business.

Speaker Change: The shops will vary in size with the majority being 500 square feet and.

Thomas A. Kingsbury: In addition to stores, we will offer baby gear products digitally and launch a baby registry later this fall. I look forward to sharing more details on our upcoming earnings. Rebuilding our home business also represents a meaningful opportunity. We have invested a great deal of time and energy rethinking our home business strategy, leveraging our team, for success. In 2023, we focused on building our assortment across wall art, glassware, and ceramics, botanicals, storage, lighting, seasonal decor, and pets.

Speaker Change: In addition to stores, we will offer baby gear products digitally and launched our baby registry later this fall.

Speaker Change: I look forward to sharing more details on upcoming earnings calls.

Speaker Change: Rebuilding our home business also represents a meaningful opportunity.

Speaker Change: We have invested a great deal of time and energy rethinking our own business strategy, leveraging our team's history of success in the category.

Speaker Change: In 2023, we focused on building our assortment across Walmart.

Speaker Change: Glass and ceramics, mechanicals storage lighting seasonal decor and pet.

Thomas A. Kingsbury: As we move through the fall season, our in-store storm began to reflect all of this work, and we are pleased that this has led to an increase in home sales in stores. In 2024, we expect home sales to increase as more customers become aware of our expanded assortment. This month, we are launching a new marketing campaign to increase awareness of our new home collection for every room, every style, and every budget. We will continue to invest in merchandising and marketing to support our efforts throughout the year. Now, let me touch on gifting and impulse.

Speaker Change: As we move through the fall season, our in store assortment began to reflect all of this work and we are pleased that this has led to an increase in home sales in stores.

Speaker Change: In 2024, we expect home sales to increase as more customers become aware of our expanded assortment.

Speaker Change: This month, we are launching a new marketing campaign to increase awareness of our new home collection for every room every style and every budget.

Speaker Change: We will continue to invest in merchandising and marketing to support our efforts throughout the year.

Speaker Change: Now, let me touch on gifting and impulse.

Thomas A. Kingsbury: In 2023, we make great strides in becoming a year-round gifting destination. One of the first moves I made after my return to Kohls was repositioning gifting to the front of the store and expanding the assortment we offer. This proves to be a success.

Speaker Change: In 2023, we've made great strides in becoming a year round gifting destination.

Speaker Change: One of the first moves I made after my return to calls was repositioning gifting to the front of the store and expanding the assortment we offered.

Speaker Change: This proved successful with a strong performance across all key events, including holiday, where we achieved a nearly 90% sell through.

Thomas A. Kingsbury: This is a video of the show on performance across all key events, including holidays, where we achieved nearly 90% self-sufficiency. We expect growth in gifting to continue in 2024 and beyond as we build further awareness and broaden the categories we offer. We will also invest in more receipts around key events, given the strong sell-throughs we are experiencing. Rounding out our opportunity in under-penetrated categories is, In 2023, we expanded our assortment of impulse items, merchandise in the customer checkout line, which drove over 40% sales. We'll further capitalize on this opportunity this year by rolling out queue-free shopping and Sandra Vockel-Torres to an additional 350 stores, bringing our total to 435.

Speaker Change: We expect growth in gifting to continue in 2024 and beyond as we build further awareness and broaden the categories we offer.

Speaker Change: We will also invest in more receipts around key events given the strong sell throughs we are experiencing.

Speaker Change: Rounding out our opportunity in underpenetrated categories as impulse.

Speaker Change: In 2023, we expanded our assortment of impulse items merchandising the customer checkout line, which drove over 40% sales growth.

Speaker Change: We will further capitalize on this opportunity this year by rolling out queuing fixtures and expanded assortments to an additional 350 stores, bringing our total to 435 stores.

Thomas A. Kingsbury: So to summarize, the baby, home, gifting, and impulse categories together represent a sales opportunity of more than $2 billion over the next several years. I look forward to updating you on our progress at www.thevenusproject.com. I now want to detail some of the work we have underway to rebalance our assortments and to improve the performance of our apparel and footwear offerings. During 2023, we embedded new disciplines and enhanced our process to ensure we are delivering more relevant products to our customers. This has included operating with greater flexibility and speed in managing inventory.

Speaker Change: So to summarize the baby home gifting and impulse categories together represent a sales opportunity of more than $2 billion over the next several years.

Speaker Change: I look forward to updating you on our progress in future quarters.

Speaker Change: Yeah.

Speaker Change: I now want to detail some of the work we have underway to rebalance, our assortments and to improve the performance of our apparel and footwear offerings.

Speaker Change: During 2023, we embedded new disciplines and enhanced our processes to ensure we are delivering more relevant product to our customers.

Speaker Change: This has included operating with greater flexibility and speed in managing inventory expanding choice counts to serve more customers and.

Thomas A. Kingsbury: Expanding choice counts to serve more customers and introducing market brands to deliver more fashion. Our customers will begin to see the full impact of our efforts in the coming months. Let me share a few examples of strategies we have underway. In women's, we are rebalancing our inventories by category and will maintain a consistent focus on newness. This spring, we will build on our success in dresses by broadening our assortment and expanding dedicated in-store dress shops to 700 stores. We'll also continue to amplify polished casual more broadly by leaning into Lauren Conrad and Simply Vera Vera.

Speaker Change: And introducing market brands to deliver more fashion.

Speaker Change: Our customers will begin to see the full impact of our efforts in the coming months, let me share a few examples of strategies we have underway.

In womens we are rebalancing, our inventories by category and will maintain a consistent focus on newness.

Speaker Change: This spring we will build on our success in dresses by broadening our assortments.

Speaker Change: And expanding dedicated in store dress shops to 700 stores.

Speaker Change: We will also continue to amplify polished casual more broadly by leaning into Lauren Conrad and simply Vera Vera Wang.

Thomas A. Kingsbury: And within our junior business, we will further scale our market brand strategy and introduce new brands such as Aeropostale and Madden Girls. In men's, we are diversifying our offering to serve more wear occasions. This will include increased choice, in Polish Casual, and expanded use of market brands to deliver on the latest fashion. The introduction of Newbrain.

Speaker Change: And within our junior business, we will further scale, our market brand strategy and introduce new brands, such as Ara stall and Madden girl.

Speaker Change: In men's we are diversifying our offerings to serve more wearing occasions.

Speaker Change: This will include increased choices and polished casual expanded use of market brands to deliver on the latest fashion trends and the introduction of new brands.

Thomas A. Kingsbury: In kids, we are strengthening our offering across preteen, little kids, and baby through greater newness and new brands while focusing on simplified value. We are increasing the number of stores offering Little & Co. by Lauren Conrad, a brand that has seen significant positive growth in recent years, and we will benefit from our new partnership with Babies R Us, which will attract younger customers. In addition, across our broader apparel assortment, we'll offer several new brands in 2024, including Quicksilver, Roxy, Limited II, Mangrove, and Aeropistol. And in footwear, we have a big opportunity to reestablish our positioning in dress and casual footwear. This year, 70% of our dress and casual assortment will be new or updated.

Speaker Change: In kids, we are strengthening our offering across pre teen little kids and baby through greater newness and new brands, while focusing on simplified value. We are increasing the number of stores offering little emco by Lauren Conrad our brand has seen significant positive growth in recent years and we will bear.

Speaker Change: <unk> from our new partnership with babies R us, which will attract younger customers to kohl's.

Speaker Change: In addition.

Speaker Change: <unk> across our broader apparel assortment, we will offer several new brands in 2020 forward, including quick silver Roxy limited to men grow in Europe install.

Speaker Change: And in footwear, we have a big opportunity to reestablish our positioning in dress and casual footwear.

Thomas A. Kingsbury: We will also elevate our lifestyle assortment with new products from national brands such as Skechers and Slipknot. As you just heard, we have a lot of actions underway to enhance the customer experience to grow our business, and I'm highly optimistic that our future results will reflect that. Now, let me discuss our second priority, which is accelerating and simplifying our value strategy. We've talked a lot about simplifying the value we deliver. Our goal is to ensure we are meeting our existing customers' expectations while also attracting new customers with prices that consistently appear competitively. We've made a lot of progress in 2023, shifting towards more targeted offers and clearing goods more regularly. We also successfully tested high volume pricing on 30% of our private brand throughout the back half of 2023. Based on the results, we recently scaled high-volume pricing to the balance of our private brand. We are also strengthening our loyalty offering. In 2023, we introduced a co-brand credit card adding to our existing suite of loyalty offerings, which include Kohls Cash, Kohls Rewards, and our Kohls Private Label Card.

Speaker Change: This year, 70% of our dress and casual assortment will be new or updated.

Speaker Change: We will also elevate our lifestyle assortment with new products from National brands, such as Skechers slip ends.

Speaker Change: As you just heard we have a lot of actions underway to enhance the customer experience to grow our business.

Speaker Change: I'm highly optimistic that our future results will reflect this.

Speaker Change: Now, let me discuss our second priority, which is accelerating and simplifying our value strategies.

Speaker Change: We've talked a lot about simplifying the value we deliver.

Speaker Change: Our goal is to ensure we are meeting our existing customers expectations, while also attracting new customers with prices that consistently show up competitively.

Speaker Change: We've made a lot of progress in 2023 shifting towards more targeted offers and clearing goods more regularly. We also successfully tested high volume pricing on 30% of our private brand offering throughout the back half of 2023 and based on this we.

We recently scaled high volume pricing to the balance of our private brands.

Speaker Change: We are also strengthening our loyalty offering in 2023, we introduced a co brand credit card, adding to our existing suite of loyalty offerings, which includes kohl's cash Kohl's rewards and our core private label cards.

Thomas A. Kingsbury: Our loyalty offerings are a tremendous asset for Kohl's, and our credit customers spend on average six times more per year than non-loyalty customers. The introduction of our co-brand card expands our addressable market to reach a broader customer base that prefers greater payment flexibility. Co-brand cards have higher average balances and are more reliant on revolving interest fees as compared to private label cards, and they also generate additional revenue streams such as interchange.

Speaker Change: Yes.

Speaker Change: Our loyalty offerings are a tremendous asset for calls and our credit customers spend on average six times more per year than non loyalty customers.

Speaker Change: The introduction of our co brand card expands our addressable market to reach a broader customer base that prefers greater payment flexibility.

Speaker Change: Co brand cards have higher average balances and are more reliant on revolving interest fees as compared to private label cards and they are also generate additional revenue streams such as interchange fees.

Thomas A. Kingsbury: I see incremental credit revenue from the CoBrand card growing to between $250 million to $300 million annually in 2025. We converted nearly 700,000 private label card holders to CoBrand in mid-2023. We plan to convert another nearly 5 million customers to the Kohl brand card later this year, bringing it to more than 25% of our 20 million active customers. And in 2025, we'll further grow our customer base through additional conversions and new customers. Our co-brand card is a key mitigation measure to offset late fee regulatory changes. As Jill will discuss in more detail, we see the impact largely in 2024. In full year 2025, the ongoing headwind will be offset by the expected contribution bill, co-brand card, and additional. We will now transition to our third priority, which is managing inventory.

Speaker Change: We see incremental credit revenue from the co brand card growing to between $250 million to $300 million annually by 2025.

Speaker Change: We converted nearly 700000 private label cardholders to co brand in mid 2023 and plan to convert another nearly 5 million customers to the co brand card later this year, bringing it to more than 25% of our 20 million active cardholders and in 2025, we will further.

Speaker Change: Grow our customer base through additional conversions and new customer acquisition.

Speaker Change: Our co brand card is a key mitigation measure to offset late fee regulatory changes.

Speaker Change: As Joe will discuss in more detail, we see the impact largely in 2024 and.

Speaker Change: And full year 2025, the ongoing headwind will be offset by the expected contribution build of the co brand card and additional mitigation action.

Thomas A. Kingsbury: During Q4, we showed strong inventory and... produced inventory by, ahead of our goal of planning inventory down, new disciplines we implemented earlier this year, which allows us to operate with greater open abide. Taking ahead to 2024, we are planning inventory down... focus on driving inventory. And from an expense perspective, we reduced Q4 SG&A by 4%, which was slightly better than our expectations. Looking ahead, we will continue to manage expenses tightly with greater marketing efficiency and automation while increasing productivity in stores. And lastly, our fourth priority is strengthening our balance. We remain committed to returning our balance sheet to its historical strength. During Q4, we generated significant cash flow, enabling us to significantly reduce our debt. Our revolver borrowings were $92 million at year-end, down from $625 million at the end of the third quarter, and we retired $111 million of bonds.

Joe: I will now transition to our third priority, which is managing inventory and expenses with discipline.

Joe: During Q4, we showed strong inventory and expense management.

Joe: We reduced inventory by 10% compared to last year ahead of our goal of planning inventory down mid single digits percent.

Joe: The new disciplines, we implemented earlier this year, which allows us to operate with greater opened a buy continue to prove beneficial.

Joe: Looking ahead to 2024, we're planning inventory down mid single digits percent with a focus on driving inventory turns.

Joe: And from an expense perspective, we reduced Q4, SG&A, 4%, which was slightly better than our expectation. Looking ahead, we will continue to manage expenses tightly with greater marketing efficiency and automation, while increasing productivity in stores and distribution centers.

Joe: And lastly, our fourth priority is strengthening our balance sheet, we remain committed to returning our balance sheet towards historical strength.

Thomas A. Kingsbury: In 2024, our focus will be to pay down the remaining revolver... We build our cash position and capitalize on additional opportunities to reduce debt and further lower our overall. We will also remain committed to returning capital to shareholders. Jill will discuss our overall capital allocations. Priorities. To summarize my comments today, I want to leave you with three... First.

Joe: During Q4, we generated significant cash flow, enabling us to significantly reduce our debt levels. Our revolver borrowings were $92 million at year end down from $625 million at the end of the third quarter, and we retired $111 million of bonds.

Joe: In 2024, our focus will be to pay down the remaining revolver balance rebuild our cash position and capitalize on additional opportunities to reduce debt and further lower our overall leverage we will also remain committed to returning capital to shareholders through our dividend.

Thomas A. Kingsbury: To hear today, we made great progress in repositioning Kohl's during 2020. Our efforts enhance the SOAR experience and increase the relevance of our SOAR. We also embedded new disciplines and processes across our enterprise, allowing us to effectively manage inventory. Collectively, these actions, and others, have positioned the company for improved sales in 2024 and beyond.

Joe: Joe will discuss our overall capital allocation priorities in a moment.

Joe: To summarize my comments today I want to leave you with three things first as you heard today, we made great progress in repositioning calls during 2023.

Thomas A. Kingsbury: We have our sights set on growth and have several compelling initiatives in place to deliver incremental sales in the coming years through Sephora, Home, Baby Gear, Gifting, and Impulse. We will also improve the performance of our apparel and footwear assortments through greater product relevance and more simplified pricing. And third, we are committed to driving profitability and strengthening our balance sheet through strong cash. In 2024, we expect to drive further gross margin expansion, and we will tightly manage expenses, resulting in another solid year of cash flow generation, which will give us opportunities to further reduce our debt and overall leverage. I want to thank all of the Kohls Associates across the organization for their efforts to reposition our company. I am incredibly proud of what we've accomplished in 2023, and I look forward to seeing more of our efforts come to fruition in 2024 and beyond.

Joe: Our efforts to enhance the store experience and increase the relevance of our assortment, we also embedded new disciplines and processes across our enterprise, allowing us to effectively manage inventories collectively these actions have positioned the company for improved sales in 2024 and beyond.

Joe: Second.

Joe: We have our sights set on growth and have several compelling initiatives in place to deliver incremental sales in the coming years through Sephora home baby gear gifting and impulse.

Joe: We'll also improve the performance of our apparel and footwear assortments through greater product relevance and more simplified pricing.

Joe: And third we are committed to driving profitability and strengthening our balance sheet through strong cash flow and.

Joe: In 2024, we expect to drive further gross margin expansion and we will tightly manage expenses, resulting in another solid year of cash flow generation, which will provide us opportunities to further reduce our debt and overall leverage.

Jill Timm: I hope those listening today will get a chance to visit our stores and see all of the great work that is taking place. I will now turn over the call to Jill to discuss our fourth quarter and full year 2023 results and outlook for 2022. Thank you, Tom. And good morning, everyone.

Speaker Change: I want to thank all of the calls associates across the organization for their efforts to reposition our business I am incredibly proud of what we've accomplished in 2023 and I look forward to seeing more of our efforts come to fruition in 2024 and beyond.

Jill Timm: As you just heard, 2023 was an important year where we made progress in our efforts to reposition the business for future sales and earnings growth. We are excited to see our actions build further momentum in 2024 and beyond. I will now provide additional details on our fourth quarter and full year 2023 results and then discuss our guidance outlook for 2020. Net sales declined 1.1% in Q4 and 3.4% for the year, and Terrible Sales, who had $164 million of sales from the 53rd, declined 4.3% in Q4 and 4.7% Store comparable sales were down 1% in Q4 and were flat on the year, which, as Tom shared, was our best performance since 2020. In the quarter, store sales were driven by strong performance from Sephora at Kohls and growth in the home category. Digital sales, excluding the 53rd week, declined 10% in Q4 and 15% for the full year.

Speaker Change: I hope those listening today will get a chance to visit our stores and see all the great work that is taking place.

Speaker Change: I'll now turn over the call to Jill to discuss our fourth quarter and full year 2023 results and outlook for 2024.

Jill Timm: Thank you Tom and good morning, everyone. As you just heard 2023 was an important year, where we made progress in our effort to reposition the business for future sales and earnings growth.

Jill Timm: We are excited to see our actions further momentum in 2024 and beyond.

Jill Timm: I will now provide additional details on our fourth quarter and full year 2023 results and then discuss our guidance outlook for 2024.

Jill Timm: Net sales declined one 1% in Q4 and three 4% for the year.

Jill Timm: Comparable sales, which exclude $164 million of sales from the 50 <unk> week declined four 3% in Q4 and four 7% for the year.

Jill Timm: So our comparable sales were down 1% in Q4 were flat on the year, which as Tom shared with our best performance since 2010.

Jill Timm: In the quarter store sales were driven by strong performance from Sephora at calls and growth in the home category.

Jill Timm: Digital sales, excluding the 50 <unk> week declined 10% in Q4 and 15% for the full year.

Jill Timm: From a penetration perspective, Digital accounted for 35% of Q4 net sales and 29% of full-year net sales. In the quarter, digital sales trends improved as the quarter progressed, with December and January down mid-single digit percent to last year, which gives us confidence as we look to 2024. Other revenue, which is primarily our credit business, grew 1% in Q4, in line with our expectations as we began to benefit from our recently launched CoBran card, offset partially by higher losses. For the full year, other revenue declined 5%.

From a penetration perspective digital accounted for 35% of Q4, net sales and 29% of full year net sales.

Jill Timm: In the quarter digital sales trends improved as the quarter progressed with December and January down mid single digits percent to last year, which gives us confidence as we look to 2024.

Jill Timm: Other revenue, which is primarily our credit business grew 1% in Q4 in line with our expectations as we began to benefit from our recently launched co brand card.

Jill Timm: Offset partially by higher loss rates.

Jill Timm: For the full year other revenue declined 5%.

Jill Timm: Moving down the P&L, gross margin in Q4 was 32.4%, an increase of 937 basis points. The year-over-year increase was driven primarily by reduced clearance markdowns as we lapped last year's significant actions to clear inventory. Growth margin also benefited from lower freight expense and digital-related costs. For the full fiscal year 2023, gross margin increased 347 basis points to 36.7%. SG&A expenses in Q4 decreased 4% to $1.6 billion.

Jill Timm: Moving down the P&L gross margin in Q4 was 32, 4% an increase of 937 basis points.

Jill Timm: Year over year increase was driven primarily by reduced clearance markdowns as we lap last year's significant actions to clear inventory.

Jill Timm: Gross margin also benefited from lower freight expense and digital related cost of shipping for.

Jill Timm: For the full fiscal year 2023, gross margin increased 347 basis points to 36, 7%.

Jill Timm: SG&A expenses in Q4 decreased 4% to $1 6 billion.

Jill Timm: Leveraging approximately 82 basis points versus last year. The decrease compared to last year was driven primarily by lower marketing and distribution costs. In the full year, SNA decreased 1.3%. Appreciation expense in Q4 was $187 million, with $749 million for the full year. As compared to last year, depreciation expense declined $13 million and $59 million, respectively, driven by reduced technology capital spent. Interest expense in Q4 was $82 million and was $344 million for the full year.

Jill Timm: Leveraging approximately 82 basis points versus last year the.

Jill Timm: The decrease to last year was driven primarily by lower marketing and distribution costs.

Jill Timm: For the full year SG&A decreased one 3%.

Jill Timm: Depreciation expense in Q4 was $187 million with $749 million for the full year.

Jill Timm: As compared to last year, and depreciation expense declined $13 million and $59 million, respectively, driven by reduced technology capital spend.

Jill Timm: Interest expense in Q4 was $82 million and $344 million for the full year.

Jill Timm: Relative to last year, interest expense increased $4 million in Q4 and $40 million for the year due to increased revolver borrowings throughout the year. Our tax rate was 14% in Q4 and was 15% for the full fiscal year. Net income for the quarter was $186 million, and earnings per diluted share were $1.67. For the year, net income was $317 million, and earnings per diluted share were $2.85. The 53rd week added approximately $0.09 of diluted earnings per share to the full year. Now, moving on to the balance sheet and cash flow. We ended the year with $183 million in cash and cash transfers. Inventory was down 10% compared to last year. We continue to benefit from our new disciplines, where we operate with greater flexibility, allowing us to manage inventory effectively in the quarter. Operating cash flow was $789 million in Q4 and $1.2 billion for the full year. Adjusted free cash flow was $684 million in Q4 and $519 million for the year. Capital expenditures for the quarter were $82 million and $577 million for the year.

Jill Timm: Relative to last year interest expense increased $4 million in Q4 and $40 million for the year due to increased revolver borrowings throughout the year.

Jill Timm: Our tax rate was 14% in Q4 and was 15% for the full fiscal year.

Jill Timm: Net income for the quarter was $186 million and earnings per diluted share was $1 67.

Jill Timm: For the year net income was $317 million and earnings per diluted share with $2 85.

Jill Timm: The 50 <unk> week added approximately nine of diluted earnings per share to the full year.

Now moving on to the balance sheet and cash flow.

Jill Timm: We ended the year with $183 million of cash and cash equivalents.

Jill Timm: Inventory was down 10% compared to last year.

Jill Timm: We continued to benefit from our new disciplines, where we operate with greater flexibility, allowing us to manage inventory effectively in the quarter.

Jill Timm: Operating cash flow was $789 million in Q4, and $1 2 billion for the full year.

Jill Timm: Adjusted free cash flow was $684 million in Q4 and for the year was $519 million.

Jill Timm: Capital expenditures for the quarter were <unk> $82 million and $577 million for the year.

Jill Timm: Looking ahead to 2024, we expect CapEx spend to be approximately $500 million below 2023 due to fewer Sephoras at Kohls. CapEx in 2024 will include investments to expand impulse queuing fixtures to 350 additional stores, opening approximately 140 Sephora small format shops, the launch of the Babies R Us partnership, and the opening of six new stores, inclusive of one relocation. Now, let me provide an update on our capital allocation priorities. We remain committed to strengthening our balance sheet and returning capital to shareholders. During the fourth quarter, we retired $111 million of bonds, and for the year, we retired $275 million.

Jill Timm: Looking ahead to 2024, we expect capex spend to be approximately $500 million.

Jill Timm: Below 2023, due to fewer sephora at Kohl's openings.

Jill Timm: Capex in 2024 will include investments to expand impulse queuing fixtures to 350 additional stores.

Jill Timm: Opening approximately 140 sephora small format shop.

Jill Timm: The launch of the babies R US partnership and the opening of six new stores inclusive of one relocation.

Speaker Change: Now, let me provide an update on our capital allocation priorities.

Speaker Change: We remain committed to strengthening our balance sheet and returning capital to shareholders.

Speaker Change: The fourth quarter, we retired $111 million of bonds and for the year retired $275 million.

Jill Timm: We ended the year with $92 million on a revolver, down significantly from $625 million at the end of the third quarter and similar to last year's level. In 2024, our focus will be rebuilding our cash balance. Moving off the Revolver and Capitalizing on Opportunities to Further Reduce Our Debt and Overall Leverage. As for shareholder returns, we remain committed to our dividend at its quarterly level of $0.50, or $2 per share, on an annual basis. Every year, we pay $220 million in dividends to our shareholders. On February 28th, as previously disclosed, the board declared a quarterly cash dividend of 50 cents per share payable on April 3rd.

Speaker Change: We ended the year with $92 million on our revolver down significantly from the $625 million at the end of the third quarter and similar to last year's level.

Speaker Change: And 2024, our focus will be rebuilding our cash balance moving off the revolver and capitalizing on opportunities to further reduce our debt and overall leverage.

Speaker Change: As for shareholder returns, we remain committed to our dividend at its quarterly level of 50.

Speaker Change: $2 per share on an annual basis.

Speaker Change: For the year, we paid $220 million of dividends to our shareholders.

On February 28, as previously disclosed the board declared a quarterly cash dividend of <unk> 50 per share payable to shareholders on April 3rd.

Jill Timm: Now, let me provide details on our outlook for 2024. As you heard this morning, we've made a lot of progress in repositioning Kohls for future growth and have several important initiatives that will build this momentum in 2024. We continue to approach our guidance outlook prudently, recognizing the macroeconomic environment remains uncertain. For the full year, we currently expect net sales to be in the range of 1% to 1% decrease to a 1% increase versus 2022. Comparable fails to be in the range of flat to a 2% increase.

Speaker Change: Now let me provide details on our outlook for 2024.

Speaker Change: As you've heard this morning, we've made a lot of progress in repositioning <unk> for future growth.

Speaker Change: Important initiatives, what we'll build this momentum in 2024.

Speaker Change: We continue to approach our guidance outlook prudently recognizing the macroeconomic environment remains uncertain.

Speaker Change: Okay.

Speaker Change: For the full year. We currently expect net sales to be in the range of 1% decrease to a 1% increase versus 2023.

Speaker Change: Comparable sales to be in the range of flat to a 2% increase.

Jill Timm: Operating margins will be in the range of 3.6% to 4.1%, and EPS will be in the range of $2.10 to $2.70 per diluted share, excluding any non-recurring charges. As Tom mentioned, our guidance includes the potential impacts from the recent CFPB late fee ruling in the second half of the year. We have worked very closely with CAP One, our credit partner, and have various initiatives in place to mitigate the effects of this ruling, including the scaling of our co-brand credit cards. We believe Cobrand is in around $250 to $300 million in annual credit revenue and will be a key driver to offset the impact of this ruling in full year 2025. Now let me share some additional guidance. We expect other revenue to be down mid-teens percent for the full fiscal year 2024, with a mid-single-digit decline in the first half of the year, driven by higher anticipated losses, partially offset by Colbrane.

Speaker Change: Operating margins to be in the range of three 6% to four 1%.

Speaker Change: And EPS to be in the range of $2 10.

Speaker Change: $2 70 per diluted share excluding any nonrecurring charges.

Speaker Change: As Tom mentioned, our guidance includes the potential impact from the recent CFPB late fee ruling in the second half of the year.

Speaker Change: We have worked very closely with cap one our credit partner and have various initiatives in place to mitigate the effects of this ruling including the scaling of our co brand credit card.

Speaker Change: We believe <unk> is an incremental $250 million to $300 million in annual credit revenue and will be a key driver to offset the impact of this ruling and full year 2025.

Speaker Change: Now, let me share some additional guidance details.

Speaker Change: We expect other revenue to be down mid teens percent for the full fiscal year 2024, with a mid single digit decline in the first half of the year driven by higher anticipated loss rates, partially offset by co brand growth.

Jill Timm: Gross margin is expected to expand 40 to 50 basis points for the full year, driven by inventory management, lower freight expense, and continued benefits from the simplification of our value strategy. SG&A dollars are expected to be flat to slightly down with wage inflation offset by labor productivity improvements and marketing of and Lapping, with an appreciation and amortization of $765 million, interest expense of $320 million, and a tax rate of 23 percent.

Speaker Change: Gross margin to expand 40 to 50 basis points for the full year, driven by inventory management or freight expense and continued benefits from the simplification of our value strategies.

Speaker Change: SG&A dollars to be flat to slightly down with wage inflation offset by labor productivity improvement and marketing efficiency and lapping the 50 <unk> week.

Speaker Change: Depreciation and amortization of $765 million.

Speaker Change: Interest expense of $320 million.

And a tax rate of 23%.

Jill Timm: As it relates to Q1, we expect comparable sales to be at the lower end of our annual guidance as we lapped last year's clearance activity and as our initiatives build throughout the year. With that, Tom and I are happy to take your questions at this time. Thank you. At this time, I would like to remind everyone that in order to ask a question, press the star, then the number one on your telephone keypad. We'll take our first question from Bob Drbul at... Hi, good morning. Morning, Bob.

Speaker Change: As it relates to Q1, we expect comparable sales to be at the lower end of our annual guidance as we lapped last year's clearance activity.

Speaker Change: As our initiatives build throughout the year.

Speaker Change: With that Tom and I are happy to take your questions at this time.

Speaker Change: Yes.

Thomas A. Kingsbury: Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Thomas A. Kingsbury: We will take our first question from Bob <unk> at Guggenheim.

Bob: Hi, good morning.

Bob: Good morning, Bob.

Robert Scott Drbul: I guess I have two questions that I have for you, Tom. I think the first one really is, you know, for the full year... Can you just talk more about the confidence that you have in achieving positive comp store sales growth this year? And then the second one, I think, for Jill, is on the CFPB ruling. Can you just expand a bit more on your assumptions, like the sort of magnitude of the second half headwind, any of the mitigations that you could implement in the second half of the year? I know you talked about that $250 million opportunity, but just a bit more granularity on the credit piece would be pretty helpful to us. Thanks, Bob. As far as growth is concerned, we feel very confident about being able to hit our guidance of zero to plus two. You know, 2023 was really a setting year for all the initiatives that we think we'll be able to really take advantage of. In 2024, the Sephora thing, you know, you've heard us talk about it a lot. I mean, we just feel really, really good about it.

Bob: I guess two questions that I have for you Tom I think the first one really is for the full year.

Bob: Can you just talk more around the confidence that you have.

Bob: <unk> positive comp store sales growth this year.

Bob: Then the second one I think.

Bob: Jill is on the CFPB ruling.

Bob: Can you just expand a bit more around your assumptions like the sort of magnitude of the second half headwind.

Bob: Any of the mitigation that you could implement in the second half of the year I know you talked about that $250 million.

Bob: Opportunity, but just a bit more granularity on the credit piece would be pretty helpful to us. Thanks.

Speaker Change: Thanks, Bob.

Speaker Change: As far as growth go we feel very confident about being able to hit our guidance of zero to plus two.

Speaker Change: 2023 was really a setup year for all the initiatives that we.

Speaker Change: We think we will be able to.

Speaker Change: Really take advantage of.

Speaker Change: In 2024.

Speaker Change: The Sephora thing.

Speaker Change: <unk> heard us talk about it a lot I mean, we just feel really really good about it and.

Thomas A. Kingsbury: And, you know, we already have it in 910 stores. We're going to, we're going to add another 140 small formats. And we're already stating that we're going to beat our goal in 2025.

Speaker Change: We have we already have it in 910 stores, we're going to we're going to add another 140 small format for already.

Speaker Change: Stating that we're going to beat our goal.

Speaker Change: In 2025, so that's going to keep on giving us.

Thomas A. Kingsbury: So that's going to keep giving us some plus sales. And then one thing I'm really excited about is what we're doing in our home business. We're investing in a lot of categories that we weren't really in. I mean, in terms of home decor, wall art, and lighting.

Speaker Change: Plus sales.

Speaker Change: And then one thing I'm really excited about is.

Speaker Change: What we're doing in our home business.

Speaker Change: We're investing in a lot of categories candidly that.

Speaker Change: We werent really in I mean in terms of home decor wall art lighting pet.

Thomas A. Kingsbury: Pat, and if you go into our stores now, you'll see the elevated inventory levels in those categories. Now, I'm really happy with what our team has done so far in order to obviously improve that presentation. You know, gifting.

Speaker Change: And.

Speaker Change: Yes, if you go into our stores now youll see the elevated inventory levels.

Speaker Change: In those categories now Im really happy with what our team has done so far in order to obviously improve that presentation.

Thomas A. Kingsbury: You know, we've done very, very well since moving gifting to the front of the store. We did well on Valentine's Day. We did really well on holidays, as I mentioned before. But we want to be known for gifting headquarters, and we're doing a good job of getting there overall. Impulse.

Speaker Change: Gifting.

Speaker Change: We've done very very well since moving gifting to the front of the store.

Speaker Change: We did well in Valentine's day, we did really well in holiday as I mentioned before but we want to be known for gifting headquarters and.

Speaker Change: We're doing a good job of getting getting there overall.

Speaker Change: Impulse, it's another big category for us.

Thomas A. Kingsbury: That's another big category for us. You know, we're adding queueing lines to 350 stores to bring it to 435 total. You know, I think we're a little bit behind the eight ball in terms of really building out the impulse business. Obviously, a lot of people are doing it, and we expect significant growth from that category overall. You know, today we announced that we have a partnership with Babies R Us. It's just part of our overall campaign to get younger customers into our stores. You know, Sephora has done a phenomenal job helping us with that. The Babies R Us, it's just part of that.

Speaker Change: We're adding queuing lines to 350 stores to bring it to 435 totally.

Speaker Change: I think we're a little bit behind the eight ball in terms of really building out the impulse business.

Speaker Change: Obviously, a lot of people are doing it and we expect significant growth out of that.

Speaker Change: That category overall.

Speaker Change: Today, we announced that we have.

Speaker Change: Our partnership with babies R us.

Speaker Change: It's just part of our overall campaign to get younger customers.

Speaker Change: Into our stores, so far has done a phenomenal job, helping us with that.

Speaker Change: The babies R us such as part of that we really feel that it will help.

Thomas A. Kingsbury: We really feel that it'll help bring in a younger consumer. And it's a category, candidly, that is really wanted and needed by customers based on all the different things that have been happening over time. So we're happy to be able to supply that product to our customers overall. You know, our private brands, we've really elevated it from a High Volume Pricing Perspective. Overall, it's in all of our private brands, so that's also giving us growth. We tested it, and it did extremely well.

Speaker Change: Bringing a younger consumer.

And it's a category candidly that.

Speaker Change: Is really wanted and needed by the customers based on all the.

Speaker Change: Things that have been happening over time, so we're happy to be able to supply that product.

Speaker Change: Our customers overall.

Speaker Change: Our private brands.

Speaker Change: Elevated.

Speaker Change: From.

Speaker Change: Hi, volume pricing perspective overall.

It's in.

Speaker Change: All of our private brands. So that's also giving us.

Speaker Change: Growth.

Speaker Change: We tested it.

Speaker Change: And it did extremely well, we see that continuing.

Thomas A. Kingsbury: We see that continuing, and then in our apparel and footwear areas. We're adding 700 dress shops in women's. We're also working hard on bringing in more market brands in juniors. It's another part of our initiative to bring in younger consumers. We really feel that the junior business, which is already doing well, is going to continue to help us satisfy the younger customer, but also the Sephora customers, which we're working on. Overall, for men, we've done very well in polished casual, suitings, dress shirts, etc. We see that continuing for a long time. And then kids, same deal in terms of a lot more polished casual, more dress-up products, girls' dresses, etc.

Speaker Change: And then in our apparel and footwear areas.

Speaker Change: We're adding 700 dress shops in womens.

Speaker Change: We're also working hard on bringing in more market brands and juniors.

Another part of our initiative to bring in the younger consumers, we really feel that the junior business and it's already doing well.

Speaker Change: It's going to continue to help us satisfy the younger customer, but also the support our customers.

Which we're working on.

Speaker Change: Overall mens we've done very well in and polished casual soon.

Speaker Change: <unk> dress shirts et cetera, we see that continuing.

Speaker Change: For for a long time, and then kids same same deal in terms of.

Speaker Change: Lot more polished casual.

Speaker Change: More dress up product growth stresses et cetera, but also there will be a benefit.

Thomas A. Kingsbury: But also, there will be a benefit from the BRU partnership overall. We're working hard on our footwear business. Over time, we've really reduced our product offering in dress and casual, so we're primarily athletic, so we're fixing all of that, and then the accessory business. We just have a big opportunity there in jewelry handbags. And especially so, with all that said, you know.

Speaker Change: From the B are you partnering.

Speaker Change: Partnership overall.

Speaker Change: We're working hard on our footwear business.

Speaker Change: Over time, we've really reduced our.

Speaker Change: Our product offering and dress and casual.

Speaker Change: So.

Speaker Change: Primary primarily athletic so we're fixing all of that and then.

Speaker Change: The accessory business, we just have a big opportunity there and jewelry handbags.

Thomas A. Kingsbury: It's hard not to feel very confident about our growth in 2024. We have a lot of things that are working and a lot of things that, you know, that we want to continue to go after aggressively.

Speaker Change: And especially so with all that said.

Speaker Change: It's hard not to feel very confident about our growth in 2024, we have a lot of things that are working and a lot of things that.

Jill Timm: And then, Bob, in terms of credit and the CFPB, obviously, you know, credit has been a really important part of our program. That credit customer is incredibly important to us, not just from the credit revenue side, but they shop with us the most, they give us the most share of their wallet. And we have been testing the co-brand card to really be an extension of that loyalty. It actually allows us to reach a broader customer base and one that prefers more payment flexibility. So with that launch, we did that last year; we tested it with about 700,000 people. And so as we assume the CFPB legislation goes into the back half of the year, in conjunction with that, we're also rolling out the co-brand card to another 5 million customers, which helps us then offset some of those headwinds. Obviously, it's a build.

Speaker Change: That we want to continue to go after aggressively.

Speaker Change: Great and then Bob in terms of the credit and the CFPB, obviously credit has been a really important part of our program.

Bob: That credit customer is incredibly important to us not just from the credit revenue side, but they shop is the lowest that give us the most share of their wallet and we have been testing the co brand card to really be an extension of that loyalty. It actually allows us to reach a broader customer and one that prefers more payment flexibility so with that launch and we do that.

Last year, we test it with about 700000 people and so as we assume the CFPB legislation goes into the back half of the year in conjunction with that we're also rolling out the co brand card to another 5 million customers, which helps us offset some of those headwinds obviously, it's a build so as we gave the guidance with other revenue being <unk>.

Jill Timm: So as we gave the guidance with other revenue being down mid-teens for the year and only down mid-single digits in the front half of the year, the bulk of that headwind comes in the back half. But then, as we indicated, those balances will build. Obviously, on a co-brand card, it's a much larger line of credit available to them. And it gives us other revenues like interchange fees to offset. So by the end of 2025, that's where that incremental $250 to $300 million will come in to fully offset any headwinds that we see from these legislative changes. Thank you. We'll move next to Mark Altschwager at Baird. Mark, thank you. Good morning.

Bob: Mid teens for the year and lay down mid single digits in the front half of the year. The bulk of that headwind comes in the back half, but then as we indicated those balances will build obviously on our co brand card.

Bob: Much larger line of credit available to them and it gives us other revenues like interchange fees to offset some by the end of 2025, that's where the incremental $250 million to $300 million will come in to fully offset any headwinds that we see from this legislative changes.

Speaker Change: Thank you.

Speaker Change: We'll move next to Mark all Schwager at Baird.

Mark R. Altschwager: Yes, Mark. Thank you good morning, Thanks for taking the question.

Mark R. Altschwager: Thanks for taking the question. You quantified the $2 billion incremental sales opportunity in under-penetrated categories. How are you thinking about the pace and the build to $2 billion, and any thoughts on sales displacement as you make room for some of these newer categories? Of course, I don't, you know; we don't see a lot of displacement of product.

Mark R. Altschwager: You quantified the $2 billion Inc.

Incremental sales opportunity in Underpenetrated categories. How are you thinking about the pace and the build to $2 billion and any thoughts on sales displacement as you make room for some of these newer categories.

Speaker Change: I don't.

Speaker Change: We don't see a lot of displacement of product.

Thomas A. Kingsbury: You know, we continually are reducing our inventories. We're down 10% at year end. So that makes way for a lot of more categories, a lot more choices that we can get, we can give the customers. We're looking at 2 billion over several years. So, you know.

Speaker Change: We're continually are reducing our inventories were down 10% at the year end.

Speaker Change: So that makes way for a lot of more categories a lot more choices that we can we can we can give the customers.

Speaker Change: We're looking at the $2 billion over several years.

Speaker Change: So.

Jill Timm: We'll have incremental growth in those categories, really starting now, and Babies R Us will obviously add in the fall season. But it's, you know, it's just, it's just spread out over several years. Yeah, I would just add Mark, you know, we've talked a lot about having excess space in our stores, and we've tried different partnerships and different arrangements over time to see how we can capitalize on that space. So I think partnerships like bringing in BRU allow us to really improve more productivity, as Tom mentioned, was one of our key goals to do this year. And then obviously, a lot of the market brands and the changes are really just, on turn, choice count, and leveraging our inventory better than we have in the past. And I think you've seen that throughout the year that we're really committed to that inventory management being down 10%, as we mentioned on the call, being down again, to mid single digits in 2024. Thank you. And just to follow up on the comp guide.

Speaker Change: We will have incremental growth in those categories.

Speaker Change: Really.

Speaker Change: Starting.

Speaker Change: Now and babies.

Speaker Change: Babies R US, we'll obviously add.

Speaker Change: In the fall season, but.

Speaker Change: It's.

Speaker Change: It is spread over spread over several years.

Speaker Change: Yes, I would just add mark we've talked a lot about having excess space in our stores and we've tried different partnerships and different arrangements over time to how we can capitalize on that space. So I think partnerships like premium beer you allows us to really just drive more productivity as Tom had mentioned with one of our key goals to do this year and then obviously a lot of the market brands in the <unk>.

Speaker Change: <unk> is really just turned choice count and leveraging our inventory better than we have in the past I think you've seen that throughout the year that we're really committed to that inventory management being down 10% as we mentioned on the call being down again mid single digits in 2024.

Speaker Change: Okay.

Speaker Change: And just to follow up on the comp guide first just anything youre willing to share on the quarter to date trend relative to how you spoke to the Q1 comp and what are your expectations for sephora comps for the year. Thank you.

Mark R. Altschwager: First, is there anything you're willing to share on the quarter to date trend relative to how you spoke about the Q1 comp? And what are your expectations for Sephora comps for the year? Thank you.

Jill Timm: I think, you know, Q1. You have to remember, February is when we have our large clearance event. So we would tell you, you know, that's why we expect it to be at the lower end. And then obviously, the build of everything that we spoke about. But what we feel really good about is the positive momentum we're seeing in our retail price business. We saw that as we exited the year, and we continue to see that positive momentum into February and March, which shows us that our customers are really reacting to the newness that we're putting on the floor. And it's really resonating with them.

Speaker Change: Q1, if you remember February is when we lap our large clearance event. So we would tell you that while we expect it to be at the lower end of that obviously the build of everything that we spoke about but what we see.

Speaker Change: Feel really good about is the positive momentum we're seeing in a Reg price business, we saw that as we exited the year, we continue to see that positive momentum.

Speaker Change: February and March which shows us that our customers are really reacting to the units that we're putting on the floor and it's really resonating with them and so that's been a key indicator that things are working Tom also mentioned, we saw our Valentines day business do incredibly well so as we really lean in fact gifting we move it to the front of the store is resonating with the customer and other things.

Jill Timm: And so that's been a key indicator that things are working. Tom also mentioned that we saw our Valentine's Day business do incredibly well. So as we really lean into that gifting, we move it to the front of the store, it's responding with the customer. Another thing to point out, and we talked about Sephora, we actually continue to see really great strength in Sephora. So our comps continue to be up, we're seeing that be a great traffic driver, new customers. We talked about that affinity, and the affinity across the store happens to overlap a lot with these new initiatives. The basket build is an impulse.

Speaker Change: Point out and we talk about tomorrow, we actually continue to see really great strengthen sephora. So our comps continue to be foreseeing that would be a great traffic driver new customer, we talked about that affinity and infinity across the store happens to overlap a lot with these new initiatives. The basket build is an impulse, it's in kids, which now we're complementing with Bayer.

Thomas A. Kingsbury: It's in kids, which now we're complimenting with babies are us. It's in the juniors business, which us bringing in those market brands is really going to resonate. So we definitely think there's a big opportunity, not just that the comps will continue within the Sephora shop, but really that halo effect and the rest of the box with a lot of the initiatives that we're enhancing this year. And Sephora, another thing that will help the growth is that we're adding about seven or eight new brands to the assortments overall. So obviously, newness is very important, but we're seeing, you know, from some of the brands that we've had since opening. So De Janeiro is really strong.

Speaker Change: <unk>, it's in the juniors business, which to us bringing in those market brands are really going to resonate. So we definitely think there's a big opportunity not just that the comps will continue with in the sephora shops, but really that halo effect on the rest of the box with a lot of initiatives that we're enhancing this year and sephora. Another thing that will help the growth as we're adding about 700 <unk>.

Speaker Change: 108, new brands to the Assortments overall, so obviously newness is very important.

Speaker Change: But we are seeing from some of the brands that we've had.

Speaker Change: Since opening so.

Speaker Change: Jason narrow.

Speaker Change: Really strong it's one of our top brands actually.

Thomas A. Kingsbury: It's actually one of our top brands in the company. The Sephora collection is doing extremely well. And Rare Beauty, those three brands are doing really, really well. So between the newness and the receptivity to the existing brands, we really feel that Sephora can keep on working well. Thank you.

Speaker Change: And the company.

Speaker Change: The Sephora collection is doing extremely well and rare beauty.

<unk> three brands are doing really really well so between the newness and.

Speaker Change: The receptivity to the existing brands.

Speaker Change: We feel that the sport coupon working well.

Speaker Change: Thank you look forward to following the progress this year.

Oliver Chen: I look forward to following the progress this year. We'll take our next question from Oliver Chen at... Hi Tom and Jill, there are a lot of great initiatives and a lot of it seems incremental, so which part of the portfolio is more of a drag or negative, is it junior then? Sephora clearly gets young customers.

Speaker Change: Yeah.

Speaker Change: We will take our next question from Oliver Chen at TD Cowen.

Oliver Chen: Hi, Tom and Jill and Theres, a lot of great initiatives and a lot of it seems incrementals, so which which part of the portfolio is more of a drag.

Oliver Chen: Or negative is it juniors.

Oliver Chen: Before it clearly gets young customers, what kind of clothing do they want and how are you executing to become more trend relevant.

Thomas A. Kingsbury: What kind of clothing do they want, and how are you executing to become more trend relevant? And Jill, as we look at the model throughout the year, the gross margin compare gets tougher given great execution there. Would love thoughts on the complexion of that, as well as whether I'm thinking we should expect a better second half on the comp side given your Q1 guidance. And, finally, you've been doing a good job. Cleaning up the online business or thinking about it for the long term. Should we still expect that to be negative, and stores to be slightly positive? Would love thoughts on that as well. Thank you. Okay, I'll take a portion of it, and I'll let Joe weigh in.

Oliver Chen: As we look at the model throughout the year. The gross margin compare gets tougher given great execution, there would love thoughts on the complexion of that as well as thinking we should expect a better second half on the on the comp side, given your Q1 guidance.

Oliver Chen: And finally the.

<unk> been doing a good job.

Oliver Chen: Cleaning up the online business or thinking about it for the long term should we still expect that to be negative in stores to be slight positive.

Oliver Chen: Would love thoughts there as well thank you.

Speaker Change: Okay, I will take a portion of it and then I'll, let Joe weigh in first of all online.

Jill Timm: First of all, online will perform comparable to the brick and mortar business. You know, we did clean up a lot, as you said, and we expect it to return to growth in 2024. As far as attracting the Sephora customer goes, juniors are really, really key, and we're already doing very well. We go into the marketplace, and we buy product, so we can react to trends. The Sephora customer really is trend-driven, and our junior business is going to give us that opportunity, but we were buying a lot of goods in juniors through our proprietary brands, and we'd buy them 12, 14 months out, and by the time we delivered them, they would be dead on arrival just because that customer reacts quickly to trends overall.

Joe: Online will perform.

Comparable to.

Speaker Change: The brick and mortar business, we did clean up a lot as you said and we expect it to return to growth in 2024.

Speaker Change: As far as attracting.

Speaker Change: The Sephora customer Juniors is really really key.

Speaker Change: We're already doing very well were going into the marketplace and we're buying product and so we can react to trends.

Speaker Change: To support our customer.

Speaker Change: Really is.

Speaker Change: <unk> is a trend driven and our junior business is going to is going to give us that.

Speaker Change: Opportunity, but.

Speaker Change: We were we were buying a lot of goods and juniors.

Through our proprietary brands.

Speaker Change: We had by 12 to 14 months out and by the time by the time, we delivered it would be dead on arrival.

Speaker Change: Just because their customer.

Speaker Change: <unk> quickly the trends overall, so using the marketplace to get the product is really going to help us satisfy the needs of the sephora customers.

Thomas A. Kingsbury: So using the marketplace to get the product is really going to help us satisfy the needs of the Sephora customer. We feel very confident about that. And I think a good proof point for that was that we did see a trend change in our junior's business and improved by over 500 points in Q4. So as a lot of these initiatives started landing with that product, it really resonated with the customer. And like I mentioned earlier, it was one of the top things in their basket due to the Sephora customer halo effect.

Speaker Change: We feel very confident about that.

Speaker Change: And I think a good proof point for that was that we did see a trend change in our juniors business and improved by over 500 points in Q4. So there's a lot of these initiatives started landing with that product it really resonated with the customer and like I mentioned earlier. It was one of the top things in their basket for Mr. For a customer halo effects I definitely can build on that from a modeling perspective.

Jill Timm: So I definitely can build on that. From a modeling perspective, what I would say is we expect margin to actually be up 40 to 50 relatively comp across the quarter. So I think there's some benefit early on from 20 that may ease, but then we have some other back caps. So I would expect that to be pretty comp across the year. You're right with the comp build.

What I'd say is we expect margin to actually be up 40 to 50 relatively comp across the quarters. So I think there is.

Speaker Change: Benefit early on from a place that may ease, but then we have some other back half. So I would expect that to be pretty comp across the year Youre right with the comp Bill. So as we mentioned in Q1, we expect to be at the low end of the range one because we lap such a big clearance impact last year in February but also because a lot of the initiatives that Tom outlined are going to build.

Jill Timm: So as we mentioned, Q1, we expect to be at the low end of the range, one because we had such a big clearance impact last year in February, but also because a lot of the initiatives that Tom's outlined are going to build. We're launching and building out our impulse lines as we speak, but that's happening at the end of the quarter into Q2 and Q3. Babies R Us is going to launch in the second half of the year.

Speaker Change: We're launching and building out our <unk> lines as we speak but that's happening ended the quarter into Q2, and Q3 babies R. US is going to launch in the back half of the year. So a lot of these initiatives will build as the year goes on and quite honestly. It just takes time for the customer to identify and realize we have that newness to drive them back in.

Jill Timm: So a lot of these initiatives will build as the year goes on. And quite honestly, it just takes time for the customer to identify and realize we have that newness to drive them back in from that perspective. And then, I think the last thing I'd just say from a digital perspective, agreeing with Tom, we think it can get back to it. We don't have the headwinds from the offer reductions.

Speaker Change: And from that perspective, and then I think the last thing I'd, just say from a digital perspective agreeing with time, we think it can get back to it we don't have the headwind.

Speaker Change: From the offer reductions we got to that from last year, which obviously with something that weighed on us differently, but we're also doing things to drive and enhance our search capabilities. So we have better querying better search results. So there are definitely things that we're doing to drive not only this time traffic, but also conversion within our website as well.

Jill Timm: We got through that from last year, which obviously was something that weighed on us differently. But we're also doing things to drive and enhance our search capabilities. So we have better querying, and better search results.

Jill Timm: So there are definitely things that we're doing to drive not only the traffic but also conversion within our website as well that we think will be contributors to getting that digital back to flat in 2024. Thanks a lot, Tom and Jill. Thanks, Oliver. We'll go next to Matthew Boss at JPMorgan. Great, and thanks for all the...

Speaker Change: We think will be contributors to getting that digital back to flat.

Speaker Change: In 2024.

Speaker Change: Thanks, a lot Tom and Joe.

Speaker Change: Thanks Oliver.

Matthew Robert Boss: We will go next to Matthew boss with Jpmorgan.

Great and thanks for all the color.

Matthew Robert Boss: So, Tom, could you elaborate on drivers of store comps in the fourth... And then maybe just to break up your flat. What are you embedding or what do you need from the core, meaning apparel and footwear comms? Gabriella Carbone.

Matthew Robert Boss: So Tom could you elaborate on drivers of store comps in the fourth quarter I think you cited it as the best since 2010.

Matthew: And then maybe just to break apart your flat to 2% same store sales guide what are you embedding or what do you need from the core so meaning apparel and footwear comps maybe relative to the negative performance this year.

Matthew: In that category.

Matthew: Okay.

Thomas A. Kingsbury: Okay, drivers of comp overall, Sephora, home, all the things that I've been talking about overall, you know, the gifting, the impulse. And we really need CORDA to help us hit the numbers we want to hit as well. But I think, you know, as I articulated, I think that there is a big opportunity in the Corps if we can continue to go after things like ladies' dresses. You know, the juniors business, as I mentioned before, other polished casual businesses.

Matthew: Driver or drivers of comp.

Matthew: Overall.

Matthew: Sephora.

Matthew: All the things that I've been talking about overall.

Matthew: The gifting the impulse.

Matthew: And we really need we would need the.

Matthew: The corridor.

Matthew: Two.

Matthew: To help us hit the numbers, we want to hit as well, but I think as I articulated I think that there is a big opportunity in the core if we can continue to go after things like ladies dresses.

Matthew: The juniors business as I mentioned before other polished casual businesses.

Thomas A. Kingsbury: You know, same with men's overall, just having a broader assortment of products we have to serve. We have to serve a lot of customers, and we want to give them a lot of choices.

Matthew: Same with men's.

Matthew: Overall, just having a broader assortment of product we have to serve we have to serve a lot of customers.

Matthew: And we want we want to give them.

Matthew: A lot of choices overall, we got a little.

Thomas A. Kingsbury: Overall, we got a little too narrow in our assortment. You know, in terms of too much active and casual, we still feel very good about those categories, but we also feel that we're going to get growth out of maximizing, you know, more of the dress-up product. You know, people are looking for that clothing. People are going out more, and they're obviously wanting that kind of clothing as part of their wardrobe. They're looking in their closet, and they don't have that product.

Matthew: Too narrow in our Assortments.

Matthew: In terms of too much active and casual we still feel very good about those categories, but we also feel that we're going to get the growth out of maximizing.

Matthew: More of the.

Matthew: Dress up product people people are looking for that and people are going out more and there there are obviously.

Thomas A. Kingsbury: So we're going to fulfill that. Great. And then, Jill, on gross margin, what do you see as the right long-term gross margin target? Your guidance this year implies you exceed the 30... Yeah, I would say we're obviously exceeding it. So we feel good.

Matthew: Wanting.

Matthew: That kind of clothing.

Matthew: As part of their wardrobe theyre looking at their closet and they don't have that product. So we're going to fulfill that.

Matthew: Okay.

Speaker Change: Great and then just on gross margin what do you see as the right long term gross margin target for the business I think your guidance. This year implies you exceed the 36 37 target for for the year.

Jill Timm: I think the algorithm to get to seven to eight is still really dependent on our top line growth. And that's where, you know, we have to continue to focus, which you've heard a lot from us say and why we believe we can get back to growth. On the margin side, we did say 36 to 37. We're exceeding that. So I would say I think we can stay a little above 37.

Yeah, I would say, we obviously, we're exceeding it so we feel good I think the algorithm to get to 7% to eight is still really dependent on our top line growth and Thats, where we have to continue focus which you've heard a lot from us say on why we believe we can get back to growth on the margin side. We did say 36 to 37, we're exceeding that so I would say I think we can say a little above 30.

Jill Timm: Moving forward, I also would say our SG&A costs have risen a lot since the algorithm came in terms of wage inflation. So between the two, it still balances out to get us to the seven to 8%.

Speaker Change: Moving forward I also with their SG&A costs have risen a lot since the algorithm came in in terms of wage inflation. So between the two is still balances out to get us to the 7% to 8%, but I would say that our algorithm will be more margin base based on the experiences that we're seeing a lot of that benefit coming through from the inventory.

Jill Timm: But I would say that our algorithm will be more margin-based based on the experiences that we're seeing a lot of that benefit coming through from the inventory management disciplines that we're seeing. So, inventory being down 10%, continuing to play it down mid singles, taking our perms or clearance markdowns much more timely. This is less markdowns, but more timely markdowns, so they're not as deep as well.

Speaker Change: Disciplined that we're seeing so and then inventory being down 10% continuing to plan it down mid singles.

Speaker Change: Taking our permit or clearance markdowns much more timely and this is less markdowns that more timely markdowns were not as deep as well and just having more choice rather than being so deep is also some data helps our turns and so I look back when we turn fast we've run some of our best operating margin. So that's really the focus on what can be a key driver from a margin perspective.

Jill Timm: And just having more choice rather than being so deep is also something that helps our turns. And so, you know, when we turn fast, we've run some of our best operating margins. So that's really the focus on what can be a key driver from a margin perspective. And then from an SG&A perspective, we continue to do what we can do, obviously, from a cost discipline. I felt good that we were down this year in SG&A despite our 53rd week.

Speaker Change: And then from an SG&A perspective, we continue to do what we can do obviously from a cost discipline. We are down this year and SG&A. Despite our 50 <unk> week. So we'll continue with that discipline and with the topline growth will continue to make progress. Despite just a little bit of a step back this year with the legislative change towards that 7% to 8%.

Jill Timm: So we'll continue with that discipline. And with top line growth, we'll continue to make progress despite just a little bit of a step back this year with the legislative change towards that seven to 8%. Thank you. Our next question comes from Telsey at Telsey Advice. Morning, Dana. Hello. Can you hear me OK?

Speaker Change: Great Best of luck.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Dana Telsey Telsey Advisory group.

Speaker Change: Yeah.

Dana Lauren Telsey: Good morning Dana.

Dana Lauren Telsey: Hello.

Dana Lauren Telsey: Can you hear me okay.

Dana Lauren Telsey: Oh good, perfect. So nice to see the improvements and certainly a lot of the initiatives. Tom, when you think about the private brands, how are the private brands doing, and with the new Babies R Us that's coming in, what does that replace in the store? And then, just speaking about the stores, you'd once talked about potentially opening a couple of stores. How do you think of the store base today and the CapEx investment, whether in remodels, given the improvement in the store base? What are you thinking about in terms of that investment? Thank you.

Dana Lauren Telsey: Now we know Dana.

Dana Lauren Telsey: Perfect. So nice to see the improvements and certainly a lot of the initiatives. Tom when you think about the private brands or the private brands doing and with the new babies R. Us thats coming in what does that replace in the store and then just speaking about the stores you had once talked about potentially even opening a couple of stores how do you.

Dana Lauren Telsey: Think of the store base today, and the Capex investment whether in Remodels given the improvement in the store base. What are you thinking about in terms of that investment. Thank you.

Dana Lauren Telsey: Yes.

Thomas A. Kingsbury: Well, we feel good about private brands. As far as private brands as a percent of total, it'll probably go down a little bit because we're working really hard on delivering more and more national brands. But it's, it's a product that delivers a lot of value on the selling floor. And that's obviously really key.

Thomas A. Kingsbury: While we feel we feel good about private brands.

Thomas A. Kingsbury: As far as private brands as a percent of total it will probably go down a little bit because we're.

Thomas A. Kingsbury: We're working really hard on delivering more and more national brands, but it's.

Thomas A. Kingsbury: Product that delivers a lot of value on the selling floor and thats obviously.

Thomas A. Kingsbury: Really key so.

Thomas A. Kingsbury: So, but you know, we are moving forward faster with trying to bring in more national brands. But, we really, you know, private brands are critical to our success, and we're going to keep delivering that kind of value for a long time. Babies R Us, we have a lot of space, as Jill said, in our stores, and it's going to be part of the infant-toddler presentation. So we're just going to carve some space out. It's about 1,500 square feet.

Thomas A. Kingsbury: But we are moving forward faster with trying to bring in more national brands overall, but we really private brands are critical to our success and.

Thomas A. Kingsbury: We're going to we're going to keep delivering that kind of value for a long time.

Thomas A. Kingsbury: Babies R us.

Thomas A. Kingsbury: We have a lot of space as Joe said in our stores and.

Thomas A. Kingsbury: It's going to be part of the.

Thomas A. Kingsbury: The infant toddler presentation. So we're just going to carve some space out is about 500 square feet.

Thomas A. Kingsbury: You know, we have 1,500 square feet in the store that we can definitely utilize overall. So it's not really going to displace anything. Again, we're going to continue to reduce our inventories, you know, mid-single digits for the foreseeable future. And so we're going to have plenty of space. We're not worried about that at all.

Thomas A. Kingsbury: We have 500 square feet.

Thomas A. Kingsbury: And the store that we can definitely utilize overall, so it's not really going to displace anything again, we're going to continue to reduce our inventories.

Thomas A. Kingsbury: Yeah.

Thomas A. Kingsbury: Mid single digits for the <unk>.

Thomas A. Kingsbury: Foreseeable future.

Thomas A. Kingsbury: And.

Thomas A. Kingsbury: So it's.

Thomas A. Kingsbury: We're going to have plenty of space, we're not we're not worried about that at all.

Jill Timm: New stores, right now we have, you know, five or six stores that we're opening. That's probably going to be our cadence for now. We're still working on, you know, what the smaller stores are going to look like. But as far as remodels go, one of the benefits of Sephora is that we were able to touch up stores. We have Sephora now in 910 stores of our 1,200. So a lot of those have already been touched because of Sephora when we made the move to clear out the space for Sephora. Do you have any comments, Jill, on the... No, I would just say a couple of things on the... A lot of what we're talking about, including Babies R Us, is touching on white space opportunities and leveraging and increasing store productivity, and that's really what our goal is. Obviously, we're excited.

Thomas A. Kingsbury: New stores right now we have <unk>.

Thomas A. Kingsbury: Five or six stores that were opening and that's probably going to be a cadence for now we're still working on.

Thomas A. Kingsbury: What the smaller stores are going to look like.

Thomas A. Kingsbury: But as far as Remodels, one of the benefits of Sephora as we were able to touch stores we have.

Thomas A. Kingsbury: For now a 910 stores of our 1200.

Thomas A. Kingsbury: So a lot of those have already been touched because of sephora when we made the.

Thomas A. Kingsbury: The move to <unk>.

Thomas A. Kingsbury: So clear out the space for Sephora.

Thomas A. Kingsbury: Do you have any comments Joe on the no I would just say a couple of things on the.

Joe: A lot of what we're talking about including maybe the wrath of touching white space opportunities in leveraging and increasing store productivity and that's really what our goal is obviously were excited we ran our best store comp since 2010, so that's a pretty good accomplishment that that's working in the right direction in terms of store openings. You know we have an incredibly healthy store base. So we feel great.

Jill Timm: We ran our best store comp since 2010, so that's a pretty good accomplishment that things are working in the right direction. In terms of store openings, you know we have an incredibly healthy store base, so we feel great with the fleet we have. And I think over the long run, we do believe there are more store opportunities, but in this case, like Tom mentioned, we just have to figure out what that box needs to look like once we get a lot of these initiatives in flight. So I would say our CapEx this year is still assuming we're going to touch some of those stores from a refresh perspective with the Sephoras, but we're able to keep that all within the $500 million of Thank you. Thanks, Dana. We'll take our final question, Grom, and Gordon.

Joe: With the fleet, we have and I think over the long run we do believe theres more store opportunities, but in this case like Tom mentioned, we just have to figure out what that box needs to look like once we get a lot of these initiatives in flight. So I would say our capex. This year is still assuming we're going to touch some of those stores from a refresh perspective with the SEC.

Joe: For us we were able to keep that all within the $500 million of Capex and then our Capex will elevate if we decide there is this new store opportunity, but at this point, we feel really good with Barbara.

Joe: <unk>.

Speaker Change: Thank you.

Speaker Change: Thanks, Dan Thank you.

Speaker Change: We will take our final question today from Chuck Grom with Gordon Haskett.

Charles P. Grom: Hey, thanks very much. I appreciate all the color this morning. Jill, can you just touch on the composition of your comp in the fourth quarter between traffic and tickets and then, as we look ahead, how you're planning the zero to 2% from a similar perspective? Sure. I think from the fourth quarter on, and quite honestly, our biggest issue from a comp perspective has been traffic. And so a lot of what you've heard about today in initiatives is how do we continue to drive discovery and excitement to drive traffic. And, you know, our ticket has been relatively flat to up; we've driven higher AURs as we brought in new brands, and especially with Sephora, a little bit higher ticket, Tommy Hilfiger, etc.

Charles P. Grom: Hey, thanks very much.

Charles P. Grom: I appreciate all the color. This morning, Joe can you just touch on the composition of your comp in the fourth quarter between traffic and ticket and then as we look ahead, how youre planning.

Charles P. Grom: The zero to 2% from a similar perspective.

Joe: Sure I think from the fourth quarter and quite honestly, our biggest issue from a comp perspective have been traffic and so a lot of what you've heard about today on initiatives is how do we continue to drive discovery and excitement to drive traffic and our ticket.

Joe: Ticket has been relatively flat to up we've driven higher AUR as we brought in new brands and especially with the four a little bit higher ticket, Tommy Hilfiger et cetera, but we saw a wallet share as Dave nervous transaction has stayed flat to up slightly it's really been around our traffic that's been.

Charles P. Grom: But we, so our wallet share has stayed, and every transaction has stayed, you know, flat to slightly up, it's really been our traffic that's been down, and that's been pretty consistent. So a lot of the initiatives that we're focused on are how we can drive that discovery. So they want to come in and see newness, have more choice, it's having less depth, it's having that, you know, fashion setting a lot quicker, and we're going to be in and out.

Joe: Down and Thats been a pretty consistent so a lot of initiatives that we're focused on is how we can drive that discovery. So they want to come in and see nunez, having more choice count, it's having less depth, that's having that fashion setting a lot quicker and we're going to be in and out so theres news for them to come in and see I would say that's exactly how we're approaching it. This year is the difference between the negatives.

Jill Timm: So there's news for them to come in and see. I would say that's exactly how we're approaching it this year, the difference between the negative and the positive is having an improvement from that traffic perspective. We've consistently seen the ATV being up slightly; we expect that to continue, but the improvement is going to come with traffic through all these new brands, these new initiatives that we have landed, particularly around impulse and gifting; it's giving them reasons to come in and then add to their basket. So we feel like we're positioned well to achieve that. Okay, okay, that makes sense.

Joe: Positive as having improvement from that traffic perspective.

Joe: We consistently see the ATV being up slightly we expect that to continue but the improvement is going to come with traffic through all of these new brands and these new initiatives that we have landing, particularly around impulse and gifting, it's giving them reasons to come in and then adding into their basket. So we feel like we're positioned well to achieve that.

Speaker Change: Okay. Okay that makes sense and then the second question is just on the gross margins.

Charles P. Grom: And then the second question is just on gross margins. And to dovetail with Matt's question earlier, you know, at this point, your gross margins would be up over 37%. That hasn't happened in a long time.

Speaker Change: To dovetail off of Matt's question earlier at this point your gross margins will be up over 37% that hasnt happened in a long time and I'm curious the thought process on reinvesting some of that margin back into price you talked about the success that you had in the back half of last year in the high <unk>.

Jill Timm: And I'm curious about the thought process on reinvesting some of that margin back into price. You talked about the success that you had in the back half of last year and the high, high volume pricing with some of the private brands. I guess, why not invest more in gross margin to drive the traffic? Just curious about the thought process there. So we did roll out all of our high value pricing as we stand today. So it is really about value, particularly on those private brands. That's what they stand for.

Speaker Change: High volume pricing with some of the private brands I guess why not invest more in gross margin to.

Speaker Change: To drive the traffic just curious the thought process there.

Speaker Change: So we did rollout all of our high volume pricing as we stand today. So it is about really value, particularly on those private brands that what they stand for and we're continuing to drive that I would say one of the things that we're using and this is a place that we're moving into more automation around is is our pricing strategies and really making sure that were compared.

Jill Timm: And we're continuing to drive that. I would say, you know, one of the things that we're using, and this is a place that, you know, we're moving into more automation around is our pricing strategies and really making sure that we're competitive. We use elasticity models.

Speaker Change: We're using elasticity models, we're figuring out how to price that so it will drive more from a customer perspective, I would say the bonus that we're getting is more around targeted coupons targeted promotions.

Jill Timm: We're figuring out how to price that so it will drive more from a customer perspective. I would say the benefit we're getting is more around targeted coupons and targeted promotions. You know, some of the offers that we were giving weren't as productive, and now we're really going to focus on the customers that will drive their productivity. That's one. Two, like I mentioned, and I don't think I can say it enough for all my merchant friends listening, is inventory management and inventory discipline. Faster turns, having to take less deep clearance, and less clearance is a huge driver for us as well.

Speaker Change: Some of the offers that we're giving warrant as productive and now were really going to focus on the customers that will drive the productivity. That's <unk> like I mentioned I don't think I can say it enough for all my two friends listening as inventory management and inventory discipline faster turns having to take less steep clearance less clearance.

Speaker Change: Huge driver for us as well and so bringing in that newness and selling more Reg price is a benefit to margin. So I would say, we're very keen on pricing value has been a core tenet of call. Since it's been started and it will continue to be for US. We think that's a space that we play incredibly well and so we arent really driving margin in my opinion it.

Jill Timm: And so bringing in that newness and selling more red price is a benefit to margin. So I would say we're very keen on pricing. Value has been a core tenant of Kohl's since it was started, and it will continue to be for us. We think that's a space that we play incredibly well in.

Jill Timm: So we aren't really driving margin, in my opinion, at the cost of taking prices up. We're driving margin based on the disciplines that we've put in and just the learnings through a lot of the elasticity modeling that we've been able to put in over the last couple of years as well. Okay, great. And then one for Tom, just, you know, where are you guys on the journey to get younger with your customer base? You talked a little bit about the success you had with Sephora, and clearly, clearly, Beads or Us is going to help you. But I think I think that the journey and where you are is an important thing to keep in mind. So, just anything you can share and where you think you can get to over the next several years.

Speaker Change: The cost of taking prices up we're driving margins based on the disciplines that we've put in and just the learnings through a lot of the elasticity modeling that we've been able to put in in the last couple of years as well.

Speaker Change: Okay, Great and then one.

Thomas A. Kingsbury: One for Tom just.

Thomas A. Kingsbury: Or are you guys on the journey to get younger with your customer base, you talked a little bit about the success you have with Sephora clearly clearly <unk> is going to help you.

Thomas A. Kingsbury: But I think I think that journey and where you are is an important thing to keep in mind. So just anything you can share and where do you think you can get to over the next several years.

Thomas A. Kingsbury: Thanks. Well, again, as you mentioned, we're making great progress on that journey. You know, support is really helping us out a lot. The Babies R Us is also, as I mentioned earlier, part of that strategy.

Thomas A. Kingsbury: Well again as you mentioned I mean, we're making great progress in that journey support is really helping us out a lot.

Thomas A. Kingsbury: <unk> also as I mentioned earlier part of that strategy and then building on our junior business rebuilding our accessory business.

Thomas A. Kingsbury: And then, you know, building on our junior business, rebuilding our accessory business, overall, even the home decor business, we really feel that that's a younger consumer overall. So I would say, you know, we made a lot, we made good progress in 2023, but we're going to continue to push hard because, obviously, we want to be more attractive to the younger consumer. The co-brand is also part of that strategy as well, so we've got a lot of things working in order to, you know, have that younger customer come into our stores.

Thomas A. Kingsbury: Overall, even the home decor business, we really feel that thats a younger consumer.

Thomas A. Kingsbury: Overall, so I would say we've made a lot we made good progress in 2023.

Thomas A. Kingsbury: But.

Thomas A. Kingsbury: We're going to continue to push hard.

Thomas A. Kingsbury: Obviously, we want to be more attractive to the younger consumer the cole brand also as part of that strategy as well. So we've got a lot of things working in order to to have that younger customer come into our stores.

Thomas A. Kingsbury: Thank you. Thanks, everyone. I really appreciate it, and have a great day. And this concludes today's conference call. Thank you for your participation. You may now go.

Thank you thanks.

Speaker Change: Thanks, everyone really appreciate it and have a great day.

Speaker Change: And this concludes today's conference call. Thank you for your participation you may now disconnect.

Speaker Change: Okay.

Speaker Change: Yeah.