Q1 2024 Kohl's Corp Earnings Call
Operator: Good morning, and welcome to the Kohls Corporation First Quarter 2024 Earnings Conference Call. Please note that today's conference is being recorded. All participants are in a listen-only mode. After the speaker's remarks, we will have a question and answer session. To ask a question, please press star followed by the number one on your telephone keypad. It is now my pleasure to turn today's call over to Mark Rupe, SCP of IR and Treasury. Please go ahead.
Good morning, and welcome to the Kohl's Corporation first quarter 'twenty 'twenty four earnings conference call.
Please note that today's conference is being recorded.
All participants are in a listen only mode.
After the Speakers' remarks, we will have a question and answer session.
To ask a question. Please press star followed by the number one on your telephone keypad.
Speaker Change: It is now my pleasure to turn today's call over to Mark Rupe VP of IR and Treasury. Please go ahead.
Mark Andrew Rupe: 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 forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in item 1A in Kohl's most recent annual report on Form 10-K, and as may be supplemented from time to time in its other filings with the SEC, all of which are expressly incorporated herein by reference.
Speaker Change: Thank you certain statements made on this call, including projected financial results and the company's future initiatives are forward looking statements.
Speaker Change: Such statements are subject to certain risks and uncertainties.
Speaker Change: Which could cause kohl's actual results to differ materially from those projected in such forward looking statements.
Speaker Change: Such risks and uncertainties include but are not limited to.
Speaker Change: Those that are described in item <unk> in Kohl's. Most recent annual report on Form 10-K.
Speaker Change: And as may be supplemented from time to time in Kohl's other filings with the SEC.
Speaker Change: All of which are expressly incorporated herein by reference.
Mark Andrew Rupe: Forward-looking statements relate to the date initially made, and Kohls undertakes no obligation to update them. In addition, during this call, we may make reference to non-GAAP financial measures. Reconciliation of non-GAAP financial measures can be found in the investor presentation filed as an exhibit to our Form 8K filed with the SEC and is available on the company's investor relations website. Please note that this call will be recorded. However, replays of this call will not be updated, so if you're listening to a replay of this call, it is possible that the information discussed is no longer current, and 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.
Speaker Change: Forward looking statements relate to the date initially made and Kohl's undertakes no obligation to update them.
Speaker Change: In addition, during this call we may make reference to non-GAAP financial measures.
Speaker Change: Reconciliation of non-GAAP financial measures can be found in the investor presentation filed as an exhibit to our form 8-K filed with the SEC and is available on the company's Investor Relations website.
Speaker Change: Please note that this call will be recorded.
Speaker Change: However, replays of this call will not be updated so if you're listening to a replay of this call.
Speaker Change: It's possible that the information discussed is no longer current.
Speaker Change: <unk> undertakes no obligation to update such information.
Speaker Change: Yeah.
With me. This morning are Tom Kingsbury, our CEO and Jill Timm, our Chief Financial Officer.
Speaker Change: I will now turn the call over to Tom.
Thomas A. Kingsbury: Thank you, Mark, and good morning, everyone. Our first quarter results did not meet our expectations and are not reflective of the direction we are heading with our strategic initiative. We knew the first quarter would be our toughest comparison of the year. This was predominantly due to last year's elevated clearance activity, which is more than 600 basis points of drag on comp sales in Q1. That said, we expected our regular price business to offset this headline.
Tom: Thank you Mark and good morning, everyone.
Thomas A. Kingsbury: Our first quarter results did not meet our expectations and are not reflective of the direction, we are heading with our strategic initiatives.
Thomas A. Kingsbury: We knew the first quarter would be our toughest comparison of the year.
Thomas A. Kingsbury: This was predominantly due to last year's elevated clearance activity.
Thomas A. Kingsbury: This was more than 600 basis points of drag on comp sales in Q1.
Thomas A. Kingsbury: That said, we expected our regular priced business to offset this headwind.
Thomas A. Kingsbury: Regular price sales were strong through the first eight weeks of the quarter, but those softened in late March and into April, especially for our spring seasonal products. And while regular price sales did increase by low single digits in the first quarter, their best quarterly comp performance since 2018, they were below our expectations.
Thomas A. Kingsbury: Regular price sales were strong through the first eight weeks of the quarter.
Thomas A. Kingsbury: Those softened in late March and into April.
Thomas A. Kingsbury: Especially for our spring seasonal product.
Thomas A. Kingsbury: And while regular price sales did increase low single digits in the first quarter.
Thomas A. Kingsbury: Best quarterly comp performance since 2018.
Thomas A. Kingsbury: We are below our expectations.
Thomas A. Kingsbury: With a clearance headwind now behind us, we expect our performance will improve, building on our positive regular price trends driven by our early success in new categories and continued growth in Sephora. We are also effectively managing inventory and controlling our expenses, which resulted in gross margin expansion and a SG&A decline in the quarter. However, there are areas of opportunity that we are actively addressing, including our active and jewelry businesses. We continue to have high conviction in our strategy.
Thomas A. Kingsbury: With a clearance headwind now behind us.
Bill: We expect our performance will improve bill.
Bill: Building on our positive regular price trends driven by our early success in new categories and continued growth in sephora.
Bill: We are also effectively managing inventory and controlling our expenses, which resulted in gross margin expansion and an SG&A declined in the quarter.
Bill: However, there are areas of opportunity that we are actively addressing including our active and jewelry businesses.
Bill: We continue to have high conviction in our strategy.
Thomas A. Kingsbury: Supported by the traction we are gaining in our key growth areas, as well as the increase we are seeing in the number of new customers. That said, as Jill will discuss in more detail, our updated fiscal year guidance reflects the first quarter underperformance in a more conservative outlook given the ongoing uncertainty in the consumer environment. As it relates to the consumer backdrop,
Bill: Supported by the traction we are gaining in our key growth areas as well as the increase we are seeing in the number of new customers.
Speaker Change: That said as Joe will discuss in more detail our updated fiscal year guidance reflects the first quarter underperformance and a more conservative outlook given the ongoing uncertainty in the consumer environment.
Speaker Change: As it relates to the consumer backdrop.
Thomas A. Kingsbury: Our customers continue to be pressured by a number of economic factors, including high interest rates and inflation. While spending among our high-income customers has remained steady, our middle-income customers continue to be impacted. In this environment, we are working hard to deliver even more value, recognizing that the discretionary spend of our customers is under pressure. Part of this is having a strong private brand portfolio which positions us well as the consumer is looking for value.
Speaker Change: Our customers continue to be pressured by a number of economic factors, including high interest rates and inflation.
Joe: While spending among our high income customers has remained steady our middle income customer continues to be impacted.
Joe: In this environment, we are working hard to deliver even more value recognizing that the discretionary spend of our customers is pressured.
Joe: Part of this is having a strong private brand portfolio, which positions us well as the consumer is looking for value.
Thomas A. Kingsbury: While navigating what remains a challenging consumer backdrop, we remain focused on executing against 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. Over the past year, we have implemented a significant amount of change across the organization to reposition our business. However, efforts of this scale take time.
Joe: While navigating what remains a challenging consumer backdrop, we remain focused on executing against our core strategic priorities, which are enhancing the customer experience accelerating and simplifying our value strategies.
Joe: Managing inventory and expenses with discipline and further strengthening our balance sheet.
Joe: Okay.
Joe: Over the past year, we have implemented a significant amount of change across the organization to reposition our business.
Speaker Change: Yes, Sir efforts of this scale take time.
Thomas A. Kingsbury: As I look at our progress against these priorities, we are executing well against two. Managing inventory and expenses tightly and Strengthening our Balance Sheet by Reducing our Long-Term Debt. When it comes to enhancing the customer experience and simplifying our value strategies, we are making progress, but we continue to have opportunities in front of us. Taking a step back, let me start with what's working.
Speaker Change: If I look at our progress against these priorities, we are executing well against two <unk>.
Speaker Change: Managing inventory and expenses tightly and strengthening our balance sheet by reducing our long term debt.
Speaker Change: When it comes to enhancing the customer experience and simplifying our value strategies, we are making progress but continues to have opportunities in front of us.
Taking a step back let me start with what's working.
Ed: So for Ed calls continues to deliver exceptional results.
Thomas A. Kingsbury: Sephora at Kohls continues to deliver exceptional results. In Q1, forest sales increased 60%, including greater than 20% comparable beauty sales growth and better than expected contribution from shops opened in the past year. We saw especially strong growth in our skin care, bath and body, and fragrance offerings, driven in part by the continued success of brands such as Sol de Janeiro and Sephora Collections. In 2024, we will open 140 Sephora shops, of which the majority will open in Q2.
Ed: And Q1's for sales increased 60%.
Ed: Including greater than 20% comparable beauty sales growth and better than expected contribution from shops opened in the past year.
Ed: We saw especially strong growth in our skincare, bath and body and fragrance offering.
Ed: Given in part by the continued success of brands, such as Salt Asia, narrow and Sephora collection.
Ed: In 2024, we will open a 140 sephora shops of which the majority will open in Q2.
Thomas A. Kingsbury: And we will end the year with Sephora in approximately 1,050 stores. Sephora continues to be an important driver of our new customer acquisition. We are also continuing to attract a younger, more diverse customer who shops more frequently as we have expanded Sephora across our store base. In addition to Sephora, we are also making progress in building our presence in underpenetrated categories, including home, gifting, and impulse, and look forward to the launch of Baby's R Us. We outline these collectively as a $2 billion plus sales opportunity for us in the coming year. We continue to have confidence in our ability to achieve this target.
Ed: And we will end the year with Sephora and approximately 1050 stores.
Ed: So far it continues to be an important driver of our new customer acquisition we.
Ed: We're also continuing to attract a younger more diverse customer who shops more frequently as we've expanded sephora across our store base.
Ed: In addition to Sephora, we are also making progress in building our presence in underpenetrated categories, including home gifting.
Ed: <unk>, an impulse and look forward to the launch of babies R us.
Ed: We outline these collectively as the $2 billion plus sales opportunity for us in the coming years.
Ed: We continue to have confidence in our ability to achieve this target.
Thomas A. Kingsbury: In Home, while the category underperformed the company average, we did deliver incremental sales from our growth initiatives in Decor and Pet. In Home Decor, we are seeing initial benefits from our expanded assortment and marketing investments, with sales of seasonal and everyday decor up more than 30% in Q1. New areas like wall art, lighting, and glass work have been well received, and in PET, sales increased more than 100% in the quarter, benefiting from last year's assortment expansion.
Ed: In home, while the category underperformed the company average, we did deliver incremental sales from our growth initiatives in the core and pet.
Ed: In home decor, we are seeing the initial benefits from our expanded assortment and marketing investment with sales of seasonal and everyday to core up more than 30% in Q1.
Ed: New areas like wall art lighting, and glass or have been well received.
Ed: And in pet sales increased more than 100% in the quarter benefiting from last year's assortment expansion.
Ed: Yes.
Thomas A. Kingsbury: In gifting, sales increased more than 30 percent, with strong performances across Valentine's Day and Easter, and more recently, we were pleased with the performance of our Mother's Day gifting presentation. On impulse, sales grew more than 60% as we introduced queueing lines in nearly 100 stores during Q1. We expect continued growth in gifting and employment going forward. We have invested in more receipts around key gifting events, such as Father's Day, as well as Americana merchandise to celebrate the Memorial Day and July 4th holidays. In addition, we will add dedicated queueing lines to 250 more stores to reach more than one-third of our store base by year-end.
Ed: And gifting sales increased more than 30% with strong performances across Valentine's day, and Easter and more recently, we were pleased with the performance of our mother's day gift <unk> presentation.
Ed: And an impulse sales grew more than 60% as we introduce queuing lines and nearly 100 stores during Q1.
Ed: We expect continued growth in gifting and <unk> going forward.
Ed: We have invested in more receipts around key gifting events, such as father's day as well as Americana merchandise to celebrate the memorial day and July 4th holidays.
Ed: In addition, we will add dedicated queuing lines to 250 more stores to reach more than one third of our store base by year end.
Thomas A. Kingsbury: We also continue to be excited about our upcoming partnership with Babies R Us. This partnership allows us to serve the family in a more complete way during an important period of their lives by creating a meaningful presence in the Baby Gear category. Baby gear is a large category that has seen disruption in the competitive landscape in recent years. Kohl's new commitment to this space represents a significant growth opportunity and broadens our reach with younger customers. We will open Babies R Us shops in approximately 200 Kohl's stores in Q3, which will coincide with the launch of our online presence.
Ed: We also continue to be excited about our upcoming partnership with babies R. Us.
Ed: This partnership allows us to serve the family and a more complete way during important period of their lives by creating a meaningful presence in the baby gear category.
Ed: David Gear is a large category that has seen disruption in the competitive landscape in recent years.
Ed: <unk> commitment to this space represents a significant growth opportunity and broadens our reach with younger customers.
We will open babies R us shops in approximately 200 call stores in Q3, which will coincide with the launch of our online presence.
Thomas A. Kingsbury: It's also important to mention that we are making progress in some areas of our apparel and footwear business. We have seen the most progress in our efforts to build our polished casual and dress wear offering across categories. This is most evident in the positive underlying trends we are seeing in our women's business. In Q1, regular price sales were up 3% in women's, which indicates that the newness we are introducing is resonating with our customers. One example of this is our dress business, where the customer response has been very favorable. Dresses are an area we identified as a large opportunity for Kohl's.
Ed: It's also important to mention that we are making progress in some areas of our apparel and footwear business.
Ed: Okay.
Ed: We have seen the most progress in our efforts to build our polished casual and dress we're offering across categories.
Ed: This is most evident in the positive underlying trends, we are seeing our women's business.
Ed: In Q1 regular price sales were up 3% in womens which indicates that the newness. We are introducing is resonating with our customers.
Ed: One example of this is our dress business, where the customer response has been very favorable.
Ed: Dresses is an area, we identify it as a large opportunity for Kohl's and.
Thomas A. Kingsbury: And for those that have visited our stores recently, you'll likely notice a much greater dress presence. We launched a dedicated in-store dress shop in 700 of our stores and will expand the offering in Q2, supporting continued sales momentum. In our efforts to amplify polished casual more broadly are working, we have leaned into Lauren Conrad and Simply Vera by Vera Wang and have seen solid reception with both brands delivering positive growth in the quarter.
Ed: For those that have visited our stores recently.
Ed: You'll likely notice a much greater address presence.
Ed: We launched a dedicated in store dress shop in 700 of our stores and we will expand the offering in Q2 supporting continued sales momentum and our efforts to amplify polished casual more broadly are working we have leaned into Lauren Conrad and simply Vera Vera Wang and have seen solid reception.
Ed: With both brands delivering positive growth in the quarter.
Thomas A. Kingsbury: We are also seeing positive regular price sales in our juniors. This is an area where a lot of change is happening, and we've introduced market brands to better react to fashion trends. To build on our efforts, we are repositioning the Juniors offering next to Sephora in stores to better capitalize on cross-shopping opportunities. Overall, we are pleased with the direction of our women's business as it is instrumental in driving business across other categories. In addition to women's clothing, we have seen solid demand for men's suiting, dress shirts, and dress pants, as well as children' dresses and suiting.
Ed: We are also seeing positive regular price sales in our juniors business.
Ed: This is an area, where a lot of changes happening and we've introduced market brands to better react to fashion trends.
Ed: To build our efforts we are repositioning the juniors offering next to sephora in stores to better capitalize on cross shopping opportunities.
Ed: Overall, we are pleased with the direction of our women's business as it is instrumental in driving business across other categories.
Ed: In addition to women's we are seeing solid demand for mens suiting dress shirts, and dress pants as well as kids dresses in servings.
Thomas A. Kingsbury: We've also seen casual and dressed footwear perform well in both of these areas. Moving beyond product, let me share some of our other initiatives that are working. First, our efforts to simplify our value strategies have shown early signs of success. We are seeing positive signals through our customer insight work, with more customers agreeing that Kohls is delivering great value. In February, we scaled high-volume pricing across our private brand offering, which has been received positively by customers.
Ed: We are also seeing casual and dress footwear performed well and both of these areas.
Ed: Moving beyond product, let me share some of our other initiatives that are working.
Ed: First our efforts to simplify our value strategies have shown early signs of success we.
Ed: We are seeing positive signals through our customers insight work with more customers agreeing that causes delivering great value.
In February we scaled high volume pricing across our private brand offering which has been received positively by customers.
Thomas A. Kingsbury: Also, during Q1, we increased the number of targeted offers to our loyalty customers and continued to leverage Kohls Cash as a key differentiator, and we amplified the messaging around rewards for our loyalty program and the Kohls Credit Card to drive greater enrollment. Collectively, these actions helped us drive an increase in new customer acquisition in the first quarter and higher enrollment and reduction rates in our loyalty program, all of which are positive indicators of future engagement.
Ed: Also during Q1, we increased the number of targeted offers to our loyalty customers and continue to leverage cost cash is a key differentiator and.
Ed: And we amplify the messaging around rewards for our loyalty program and Kohl's credit card to drive greater enrollment.
Ed: Collectively these actions helped us drive an increase in new customer acquisition in the first quarter and higher enrollment and redemption rates and our loyalty program all of which are positive indicators of future engagement.
Thomas A. Kingsbury: With that said, we know our most loyal customers are most sensitive to our promotions, and therefore, we will ensure that we continue to bring value to these customers with targeted promotions and personalized offers while we continue forward with our strategy to simplify value. Second, we are successfully managing inventory and expenses with discipline. Inventory in Q1 was down 13% as we continue to benefit from our disciplines where we operate with greater flexibility and an open mind. This led to an increase in inventory turn despite the lower sales. We will continue to target inventory declines in the mid-single digit percent range with a focus on driving inventory turns.
Ed: With that said, we know our most loyal customers are most sensitive to our promotions and therefore, we will ensure that we continue to bring value to these customers with targeted promotions and personalized offers while we continue forward with our strategy to simplify value.
Yes.
Ed: Second we are successfully managing inventory and expenses with discipline.
Ed: Inventory in Q1 was down 13% as we continued to benefit from our disciplines, where we operate with greater flexibility and open to buy.
Ed: This led to an increase in the inventory turn despite the lower sales.
Ed: We will continue to target inventory declines in the mid single digits percent range with a focus on driving inventory turns.
Thomas A. Kingsbury: And we controlled expenses tightly across the organization, resulting in a slight decline as compared to last year, even as we invested in marketing and our new growth initiatives, including new support shops and impulse queuing lines. And third, we are further strengthening the balance sheet. In Q1, our revolver borrowings of $355 million were down significantly from $765 million in the prior year.
Ed: And we control the expenses tightly across the organization, resulting in a slight decline as compared to last year, even as we invest in marketing and our new growth initiatives, including new Sephora shops, and <unk> queuing lines and.
Ed: And third we are further strengthening the balance sheet in Q1, our revolver borrowings of $355 million were down significantly from $765 million in the prior year.
Thomas A. Kingsbury: This level was in line with our expectation, despite lower than anticipated sales, as strong inventory management benefited cash flow. In Q2, we will reduce long-term debt by $113 million by executing a May coal call on our May 2025 notes, which Jill will discuss in more detail. So we are making solid progress across several of our initiatives. We are delivering incremental growth in new underpenetrated categories in Sephora, as well as in portions of our apparel and footwear offerings.
Ed: This level was in line with our expectations, despite lower than anticipated sales and strong inventory management benefited cash flow.
Speaker Change: In Q2, we will reduce long term debt by $113 million by executing a make whole call on our May 2025 notes, which Joe will discuss in more detail.
Speaker Change: So we are making solid progress across several of our initiatives we.
Speaker Change: We are delivering incremental growth and new underpenetrated categories in sephora as well as in portions of our apparel and footwear offerings.
Thomas A. Kingsbury: In addition, we are managing inventory and expenses with discipline and further strengthening the balance sheet. Now, let me discuss some of the headwinds we face in the quarter in areas of opportunity for us going forward. As I mentioned at the outset of this call, clearance was a major drag on our comp sales performance in Q1 as we lapped last year's elevated activity. This was a unique headwind that weighed heavily on results across our apparel and footwear businesses, and especially inactive, juniors, and kids.
Speaker Change: In addition, we are managing inventory and expenses with discipline and further strengthening the balance sheet.
Speaker Change: Now, let me discuss some of the headwinds we faced in the quarter and areas of opportunity for us going forward.
Speaker Change: As I mentioned at the onset of this call clearance as a major drag on our comp sales performance in Q1, as we lapped last year's elevated activity.
Speaker Change: This was a unique headwinds that weighed heavily on results across our apparel and footwear businesses and especially in active juniors.
Speaker Change: <unk> kits.
Thomas A. Kingsbury: Importantly, this headwind is now behind us, as our clearance sales will normalize following the first quarter of 2023. In addition, we experienced softer demand for spring seasonal product, dampening what otherwise was a strong positive trend in our regular price sales through the first eight weeks of the quarter.
Speaker Change: Importantly, this headwind is now behind us as.
Speaker Change: As our clearance sales normalize following the first quarter of 2023.
Speaker Change: In addition, we experienced softer demand in spring seasonal product dampening, what otherwise was a strong positive trend and in our regular price sales through the first eight weeks of the quarter.
Thomas A. Kingsbury: Categories including tees, shorts, and tanks were uniquely challenged, impacting our men's and kids' businesses, which have historically been sensitive to seasonal transitions. In addition to these headwinds, we also identified areas of opportunity for us going forward. The first area is active, which accounted for the majority of the overall sales decline in the quarter. Clearance is a major factor in the active decline and was felt most significantly in our men's and kids' disabilities.
Speaker Change: Categories, including Tees shorts, and tanks were uniquely challenge impacting our men's and kids businesses, which have historically been sensitive to seasonal transitions.
Speaker Change: In addition to these headwinds we also identified areas of opportunity for us going forward.
Speaker Change: The first area is active which accounted for the majority of the overall sales decline in the quarter.
Speaker Change: Clearance is a major factor in the active decline and was felt most significantly in our men's and kids businesses.
Thomas A. Kingsbury: We continue to work with our brand partners to increase newness in the back half of the year, and we are leaning into our value-oriented private brands, flex and tech gear, which performed well in the first quarter. Lexapro was especially strong, growing in excess of 50% as we further expanded the brand to all stores. We see a long runway of growth for Flex as we build awareness for this very affordable at-leisure brand that is building a solid reputation with customers. The second area is accessories.
Speaker Change: We continue to work with our brand partners to increase newness in the back half of the year and we are leaning into our value oriented private brands flex and tech gear, which performed well in the first quarter.
Speaker Change: Flex apparel was especially strong growing in excess of 50% as we further expanded the brand to all stores.
Speaker Change: We see a long runway of growth for flex as we build awareness for this very affordable athleisure brand that is building a solid reputation with customers.
Speaker Change: The second area is accessories.
Thomas A. Kingsbury: Over the past few years, as we've made space for foreign stores, we did not do a good job of retaining our jewelry sales, which have been on a consistent sales decline. However, we know there is still an opportunity to offer jewelry to our customers, especially during key events and holidays in the year. We are currently working to reestablish our presence, which will include expanding our in-store assortment and improving its in-store positioning by placing it near Sephora. We will also have a stronger presence in jewelry during the holiday season. The third area is our Legacy Home Offering. During the first quarter, select areas within our home business underperformed, with weakness in kitchen appliances, floor care, and bedding.
Speaker Change: Over the past two years as we've made space for Sephora in our stores, we did not do a good job of retaining our jewelry sales, which have been honest consistent sales decline.
Speaker Change: We know there is still an opportunity to offer jewelry to our customers, especially during key events and holidays in the year.
Speaker Change: We are currently working to reestablish our presence, which will include expanding our in store assortment and improving the in store positioning by placing it near Sephora.
Speaker Change: We will also have a stronger presence in jewelry during the holiday season.
Speaker Change: The third area is our legacy home offering.
Speaker Change: During the first quarter select areas within our home business underperformed with softness in the kitchen electrics floor care embedding.
Thomas A. Kingsbury: To improve results, we are increasing newness in Kitchen Electric, as well as introducing new brands and ensuring we are providing excellent value to our customers across bedding and floor care. And lastly, it's important that we continue to drive traffic across our omni-channel platform. In Q1, store sales slightly outperformed digital sales, though both declined given the headwinds I discussed. However, transactions in each channel improved as we moved past the clearance headwind. Looking ahead, we expect store performance to benefit from our growth initiatives, which are highlighted in stores.
Speaker Change: To improve results, we are increasing newness in kitchen electrics as well as introducing new brands and ensuring we are providing excellent value to our customers across setting and floor care.
Speaker Change: And lastly, it is important that we continue to drive traffic across our Omnichannel platform.
Speaker Change: In Q1 store sales slightly outperformed digital sales both declined given the headwinds I discussed.
Speaker Change: However, transact Sampson each channel improved as we move past the clearance headwind.
Speaker Change: Looking ahead, we expect store performance to benefit from our growth initiatives, which are highlighted highlighted in stores and.
Thomas A. Kingsbury: And in digital, we will continue to reinforce our value simplification in all communication and scale new targeting initiatives, while also improving the search and product recommendation capabilities of our site to drive increased traffic and higher conversion. I will now summarize my comments today, and I want to leave you with three things. First, our Q1 results were not up to our expectations. Clearance was a major headwind to overall comparable sales, and demand softened in late March and into April, especially for our spring seasonal products.
Speaker Change: And in digital we will continue to reinforce our value simplification and all communication and scale new targeting initiatives, while also improving the search and product recommendation capabilities of our site to drive increased traffic and higher conversion.
Speaker Change: I will now summarize my comments today and I want to leave you with three things first our Q1 results were not up to our expectations.
Speaker Change: Clearance was a major headwind to overall comparable sales and demand softened in late March and into April, especially for our spring seasonal product.
Thomas A. Kingsbury: However, regular price sales increased by low single digits, and we are actively addressing the areas of opportunity identified in the quarter. Importantly, the clearance headwind is now behind us, and we have confidence in our ability to address the opportunities we laid out. Second, many key areas of our strategy are working. Sephora at Kohls has maintained strong growth momentum, and we are driving incremental sales in home decor, gifting, and impulse, and we are seeing positive underlying trends in our women's business. And during the balance of the year, we'll open more than 100 additional Sephora shops, expand Impulse's queueing lines to an additional 250 stores, and launch our Babies R Us partnership in 200 stores and online.
Speaker Change: However, our regular price sales increased low single digits, and we are actively addressing the areas of opportunity identified in the quarter.
Speaker Change: Importantly, the clearance headwind is now behind us and we have confidence in our ability to address the opportunities we laid out.
Speaker Change: Second many key areas of our strategy are working sephora at Kohl's has maintained its strong growth momentum and we are driving incremental sales and home decor, gifting and impulse and we're seeing positive underlying trends in our women's business.
Speaker Change: And during the balance of the year, we'll open more than 100, additional sephora shops expand impulse queuing lines to an additional 250 stores and launch our babies R. US partnership in 200 stores and online.
Thomas A. Kingsbury: For these reasons, we remain confident in our strategic initiative. And third, the underlying structure of our business remains sound. While we work to drive top-line sales growth, we are managing inventory effectively, expanding gross margin, and tightly controlling expenses. We are also demonstrating our commitment to returning capital to shareholders through the dividend and strengthening the balance sheet by reducing long-term debt. Repositioning a business of this size is not a simple task, and I want to recognize our associates across stores, distribution centers, and corporate for their continued resilience and dedication to improving Kohl's results. I will now turn the call over to Jill to discuss our first quarter results and outlook for 2024.
Speaker Change: For these reasons, we remain confident in our strategic initiatives.
Speaker Change: And third the underlying structure of our business remain sound, while we work to drive topline sales growth, we are managing inventory effectively expanding gross margin and tightly controlling expenses.
Speaker Change: We are also demonstrating our commitment to returning capital to shareholders through the dividend and strengthening the balance sheet by reducing long term debt.
Speaker Change: Reposition a business of this size is not a simple task and I want to recognize our associates across stores distribution centers and corporate for their continued resilience and dedication to improving <unk> results.
Joe: I will now turn it over the call to Joe to discuss our first quarter results and outlook for 2024.
Jill Timm: Thank you, Tom, and good morning, everyone. On today's call, I will provide additional details on our first quarter results, as well as an update on our fiscal year 2024 guidance. Net sales decreased 5.3% in Q1, and comparable sales declined 4.4%. As Tom indicated, clearance was a significant headwind in the first quarter, representing more than a 600 basis point drag on comp sales. Storrs slightly outperformed Digital in the quarter, with both down from last year.
Joe: Thank you Tom and good morning, everyone for today's call I will provide additional detail on our first quarter results as well as an update on our fiscal year 2020 for Gaiam.
Joe: Net sales decreased five 3% in Q1.
Joe: Comparable sales declined four 4%.
Speaker Change: As Tom indicated Clarence with a significant headwind in the first quarter, representing more than a 600 basis point drag in Scottsdale.
Speaker Change: Sure slightly outperform digital in the quarter with boss down to last year.
Jill Timm: Other revenue, which is primarily our credit business, decreased 5.7% in the quarter as loss rates increased year-over-year, in line with our expectations. Now, let me turn to the rest of the P&L. Gross margin in Q1 was 39.5%, an increase of 48 basis points. The improvement year-over-year was driven primarily by strong inventory management and lower freight expense. SG&A expenses declined approximately 1% to $1.2 billion in the first quarter. As we continue to control expenses tightly across the organization, we're also investing in marketing and our new growth initiatives, including new Sephora shops and impulse queuing lines.
Speaker Change: Other revenue, which is primarily our credit business decreased five 7% in the quarter.
Speaker Change: Loss rate increased year over year in line with our expectations.
Jill Timm: Depreciation expense in the first quarter was $188 million, flat to last year. Interest expense was $83 million in the quarter, down $1 million from last year. The net loss for the quarter was $27 million, and the loss per diluted share was $0.24.
Speaker Change: Now, let me turn to the rest of the P&L.
Speaker Change: Gross margin in Q1 was 39, 5% an increase of 48 basis points.
Speaker Change: The improvement year over year was driven primarily by strong inventory management and lower freight expense.
Speaker Change: SG&A expenses declined approximately 1% to $1 $2 billion in the first quarter.
Speaker Change: And we continue to control expenses tightly across the organization, while also investing in marketing and our new growth initiatives, including new Sephora shops, and impulse Kieran lines.
Speaker Change: Depreciation expense in the first quarter with $188 million flat to last year.
Speaker Change: Interest expense of $83 million in the quarter down $1 million from last year.
Speaker Change: Net loss for the quarter was $27 million and loss per diluted share with 20 <unk>.
Jill Timm: Now onto the balance sheet and cash flow. We ended Q1 with $228 million in cash and cash equivalents. Inventory at quarter end declined 13% compared to last year.
Speaker Change: Now onto the balance sheet and cash flow.
Speaker Change: We ended Q1 with $228 million of cash and cash equivalents.
Speaker Change: Inventory at quarter end declined 13% compared to last year.
Jill Timm: As we have discussed in previous quarters, inventory management has been a key focus of ours with the goal of increasing churn, which we were able to do in the first quarter. Our new disciplines once again allowed us to operate with greater flexibility and manage inventory more efficiently. Operating cash flow with a use of $7 million, significantly better than last year's use of $202 million, driven by effective inventory management, and adjusted free cash flow with a negative $154 million in the first quarter. Now, let me provide an update on our capital allocation priorities. Capital expenditures for the quarter were $126 million.
As we have discussed in past quarter inventory management has been a key focus of ours with the goal of increasing churn, which we are able to do in the first quarter.
Speaker Change: New discipline once again allowed us to operate with greater flexibility and manage inventory more efficiently.
Speaker Change: Operating cash flow with the use of $7 million significantly better than last year use of Q&A $2 million.
Speaker Change: Driven by effective inventory management.
Speaker Change: And adjusted free cash flow with negative $154 million in the first quarter.
Speaker Change: Now, let me provide an update on our capital allocation priority.
Speaker Change: Capital expenditures for the quarter $126 million.
Jill Timm: For the full year 2024, we continue to expect CapEx to be approximately $500 million, which includes investment in impulse queuing lines and the four small shop openings, as well as the launch of the Babies R Us partnership and new store opening. Strengthening the balance sheet and returning capital to shareholders also remain top priorities. We ended the first quarter with $355 million on our revolver, down from $765 million last year. Our goal in 2024 remains paying down our revolver balance, rebuilding our cash position, and capitalizing on opportunities to reduce debt.
Speaker Change: For full year 2004, we continue to expect capex to be approximately $500 million.
Speaker Change: Which includes investment in impulse queuing line.
Speaker Change: Floris millsap opening.
Speaker Change: The launch of babies RF partnership.
Speaker Change: New store openings.
Speaker Change: Strengthening the balance sheet and returning capital to shareholders also remains a top priority.
Speaker Change: We ended the first quarter with $355 million on our revolver down from $765 million last year.
Speaker Change: Our goal in 2020 borrowing and paying down our revolver balance rebuilding our cash position and capitalizing on opportunities to reduce that.
Jill Timm: Earlier this month, we provided notice to the holders of our May 2025 notes that we'll be executing a May cold call on them in mid-June. As a result, we will take out the 10.75% note, totaling $113 million, which will result in an approximate $4.5 million pre-tax charge, or $0.03 per diluted share, in Q2, with subsequent interest savings going forward. This action not only lowers the average interest rate on our outstanding debt but also reduces the amount of maturities coming due in 2025. We expect to end the year with $1.5 billion in total debt.
Speaker Change: Earlier this month, we provided notice to the holders at our May 2025 note that we'll be executing a may call call in.
Speaker Change: In mid June.
Speaker Change: As a result, we will take out the 10 and three quarter percent notes totaling $113 million, which will result in an approximate $4 $5 million pre tax charge or <unk> <unk> per diluted share in Q2 with subsequent interest savings going forward.
Speaker Change: This action not only lowered the average interest rate on our outstanding debt, but also reduces the amount of maturities coming due in 2025.
Speaker Change: We expect to end the year with $1 5 billion in total debt.
Jill Timm: Looking ahead, we will continue to monitor our options with respect to the July 2025 notes and will likely address them closer to maturity given a favorable coupon rate. As for shareholder returns, maintaining our dividend at the current level remains a priority. In Q1, we distributed $55 million in dividends to our shareholders, and as previously disclosed, the Board on May 15 declared a quarterly cash dividend of $0.50 per share payable to shareholders on June 26.
Speaker Change: Looking ahead, we will continue to manage our options with respect to the July 2020 side note I will likely address them closer to maturity given the favorable coupon rate.
As for shareholder return, maintaining our dividend at current level remains a priority in Q1, we distributed $55 million in dividends to our shareholders. As previously disclosed the board on May 15th declared quarterly cash dividend of <unk> 50 per share payable to shareholders on June 26.
Jill Timm: Now, let me share some detail on our updated outlook for 2024. As you heard this morning, we are making progress against many of our key strategic initiatives. We are also working to address several opportunities identified in Q1.
Speaker Change: Now, let me share some detail on our updated outlook for 2020 solar as you've heard this morning, we're making progress against many of our key strategic initiatives.
Speaker Change: We are also working to address several opportunities identified in Q1.
Jill Timm: We are approaching our financial outlook for the year more conservatively given the first quarter underperformance and the ongoing uncertainty in the consumer environment. For the full year, we currently expect net sales to be in the range of 2% to 4% decrease versus 2023. Comparable sales are expected to be in the range of a 1% decrease to a 3% decrease. This implies a comp of flat to down 2% for the balance of the year.
Speaker Change: We are approaching our financial outlook for the year more conservatively given the first quarter under performance.
Speaker Change: Ongoing uncertainty in the consumer environment.
Speaker Change: For the full year. We currently expect net sales to be in the range of 2% decrease to a 4% decrease versus 2023.
Speaker Change: Comparable sales to be in the range of a 1% decrease to a 3% decrease.
Speaker Change: This implies a comp of flat to down 2% for the balance of the year.
Jill Timm: We continue to expect growth margin to expand 40 to 50 basis points and SG&A dollars to be down 1 to 1.5% for the year. We expect operating margins to be in the range of 3% to 3.5%, and EPS to be in the range of $1.25 to $1.85. As a reminder, our guidance includes the potential impact of the CFPB Late Fee Rule, assuming it's effective August 1st. While this rule is currently being challenged, we will continue to monitor developments and will provide an update when appropriate in the future.
We continue to expect gross margin to expand 40 to 50 basis points.
Speaker Change: And SG&A dollars to be down one to one 5% for the year.
Speaker Change: We expect operating margins to be in the range of 3% to three 5%.
Speaker Change: And EPS to be in the range of $1 25.
Speaker Change: $1 85.
Speaker Change: As a reminder, our guidance includes the potential impact from the CFPB late febrile, assuming effective August 1st.
Speaker Change: While this rule is currently being challenged we will continue to monitor developments and will provide an update when appropriate in the future.
Jill Timm: In closing, I want to reiterate that our underlying financial structure remains solid. We are expanding growth margins through effective inventory management and managing expenses with discipline. And we continue to strengthen our balance sheet by reducing long-term debt.
Speaker Change: In closing I want to reiterate that our underlying financial structure remains solid we are.
Speaker Change: <unk> gross margin through effective inventory management and managing expense with discipline.
Speaker Change: And we continue to strengthen our balance sheet by reducing long term debt.
Operator: With that, Tom and I are happy to take your questions at this time. As a reminder, to ask a question, please press star followed by the number 1 on your telephone keypad. To withdraw any questions, press star 1 again. In the interest of time, we ask that you please
Speaker Change: With that Tom and I are happy to take your questions at this time.
Operator: As a reminder to ask a question, please press star followed by the number one on your telephone keypad. To withdraw any questions, press star one again. In the interest of time, we ask that you please limit yourself to one question and one follow-up question. Thank you. Our first question comes from Bob Drbul on behalf of Guggenheim. Please go ahead. Your line is open. Hi, good morning.
Speaker Change: As a reminder to ask a question. Please press star followed by the number one on your telephone keypad to withdraw any questions Press star one again.
Speaker Change: In the interest of time, we ask that you. Please limit yourself to one question and one follow up question. Thank you.
Speaker Change: Our first question comes from Bob <unk> from Guggenheim. Please go ahead. Your line is open.
Speaker Change: Alright.
Speaker Change: Good morning.
Speaker Change: Tom I was just sorry.
Bob: I was just wondering if you could just talk some more just around the I guess the general confidence in the strategy on a go forward basis.
Bob: When you think of some of the.
Bob: The challenges that youre seeing within your own business and even within the.
Bob: And the industry.
Bob: Okay.
Thomas A. Kingsbury: OK. You know, as the prepared remarks indicated, we feel very good about what we have in terms of our overall strategy. You know, we're going to tweak things along the way. You know, I think when you look at the first quarter results, the clearance headwind really hurt us, you know, 600 basis points.
Speaker Change: As the prepared remarks indicated we feel very good about what we have.
Speaker Change: In terms of our overall strategy.
Speaker Change: We're going to tweak things along the way.
Speaker Change: Yes, I think when you look at the first quarter results.
Speaker Change: The.
Speaker Change: The clearance headwind really hurt us.
Thomas A. Kingsbury: So we had a strong performance in our regular price business, which, you know, obviously is important, especially for going forward. But, you know, fundamentally, things that are working as part of our strategies, support is still working very well, you know, with 60% total growth and 20% comp. And we've done very well in categories in the home, which are part of our major strategies, like seasonal and everyday decor. Our pet business is good, our gifting business is good, and Impulse is good.
Speaker Change: 600 basis points so.
Speaker Change: We had a strong performance in our regular price business, which obviously is important especially for.
Speaker Change: Go forward, but yes.
Speaker Change: Fundamentally.
Speaker Change: Things that are working as part of our strategy supports still working very well with a 60% total growth and 20% comp and we've done very well and categories in the home, which are part of our major strategies like seasonal and everyday to core.
Speaker Change: Our pet business is good our gifting businesses. Good impulse is good.
Thomas A. Kingsbury: You know, we've made a lot of progress in our apparel businesses by growing the polished casual and dress business really across the board. You know, our value strategies are working. Our high volume pricing has worked very nicely. We've gotten a lot of positive feedback from our customers. And, you know, we're doing a good job of managing our inventories and expenses. And so those fundamentals are still in place, and Jill talked about reducing our long-term debt.
Speaker Change: We've made a lot of progress in our apparel businesses.
Speaker Change: Growing the polished casual and dress business really across the across the board.
Speaker Change: Our value strategies.
Our working our high volume pricing has worked very nicely, we've gotten a lot of positive feedback.
Speaker Change: From our from our customers.
Speaker Change: And we're doing a good job of managing our inventories and expense. So those fundamentals are still in place.
Speaker Change: And Joel talked about.
Joel: Reducing our long term debt.
Thomas A. Kingsbury: But, you know, we have work to do, though, candidly, you know, even though we feel our strategy is a good one, we need to do a better job of rebuilding our active business. It's one of our priorities overall. The accessory business, our jewelry business, is a huge, huge opportunity for us. We've lost a lot of business with the Sephora rollout overall, and some of the legacy businesses and homes, such as floor care and bedding, and kitchen electricity, underperformed.
Speaker Change: But yes.
Speaker Change: We have work to do though candidly.
Speaker Change: Even though we feel our strategy is a good one but we need to.
Speaker Change: And do a better job in rebuilding our active business, that's one of our priorities.
Speaker Change: Overall.
The accessory business, our jewelry business is a huge huge opportunity for us with lots of lot of business with the support of rollout.
Speaker Change: Overall, and some of the legacy businesses and homes, such as floor care embedding in kitchen electrics to underperform, so working hard on that to bring in more newness.
Thomas A. Kingsbury: So, we're working hard on that to bring in more newness. You know, we're working hard to drive traffic in stores and in digital. So. But, you know, the long, long answer.
Speaker Change: And that and then.
Speaker Change: We're working hard to drive traffic traffic in stores and in digital so.
Thomas A. Kingsbury: But we feel good. We feel good about what's happening. And, you know, we feel good that the clearance headwinds, you know, we took a ton of markdowns in the fourth quarter of 22 to clean all the inventory up. So obviously, that was a huge headwind for us in the first quarter.
Speaker Change: But.
Speaker Change: Long long answer but.
Speaker Change: We feel good we feel good about what's happening and we feel good that the clearance headwinds we took a ton of Mart markdowns in the fourth quarter of 'twenty two to clean all of the inventory up.
Speaker Change: So obviously that was a huge headwind for us in the first quarter.
Speaker Change: Great. Thank you very much.
Operator: Our next question comes from Oliver Chen from TD Cowan. Please go ahead. Your line is open.
Speaker Change: Our next question comes from Oliver Chen from TD Cowen. Please go ahead. Your line is open.
Thomas A. Kingsbury: Hi, Tom and Jill. A lot of helpful comments. Why do you think the clearance impact was worse than you had originally guided to? And as you think about the biggest needle movers going forward, it sounded like juniors, active apparel, and jewelry. What will really drive comp better, you know, as we think about guidance and what should happen sequentially in the back half? And a follow-up with your comp guidance for the quarter. What's assumed for June and July, you know, relative to May? And are you thinking that traffic will be negative, positive, or flattish? Thank you.
Speaker Change: Hi, Tom and Jill.
Oliver Chen: Helpful comments on what you think the clearance impact was worse than you had originally guided to and as you think about the biggest needle movers going forward it sounded like juniors active apparel jewelry.
Speaker Change: What will really drive the comp better as we think about guidance and what should happen sequentially in the back half.
Speaker Change: Follow up with your comp guidance for the quarter, what's assumed for June and July relative to May and.
Speaker Change: Our U.
Speaker Change: How are you thinking that traffic will be negative positive or flattish. Thank you.
Speaker Change: Sure I'll start and just for clarification. It wasn't clear is that I think we got wrong on the guide. It was it was a big headwind in the quarter I think that was unique to us and what we did we started the quarter, while with our Reg price business incredibly strong.
Jill Timm: I'll start, and just for clarification, it wasn't clearance that I think we got wrong in the guide, it was a big headwind in the quarter, I think that was unique to us. And what we did is we started the quarter well with our regular price business incredibly strong, and it was offsetting the clearance headwinds. And so as we went out to the market, we felt really good about the initiatives and the momentum behind those to help offset clearance.
Speaker Change: Offsetting the clearance headwinds and so as we came out to the market. We felt really good with the initiatives and the momentum behind those to help.
Speaker Change: <unk> offset clearance as we moved into the latter part the late part of March and into April we saw a slowdown in a reg price selling particularly around our spring seasonal goods and that became the headwind that we couldnt overcome to get back into that flattish comp that we had guided to and so that really was what happened in the quarter I think fundamentally that.
Jill Timm: As we moved into the latter part, the late part of March and into April, we saw a slowdown in our reg price selling, particularly around our spring seasonal goods. And that became the headwind that we couldn't overcome to get back into that sladdish comp that we had guided to. And so that really was what happened in the quarter.
Jill Timm: I think fundamentally, the company still did well; we managed the inventory, when that's a lot of new discipline in the past; we wouldn't have had to be down 13% in inventory when we saw the sales decline. That really is a testament to that new muscle that we have. That obviously helped drive our margin, and we were able to hit our margin. And then we pulled back on expenses. So our expenses actually came in better than we had anticipated because we were able to react.
Speaker Change: Companies still did while we manage the inventory when that a lot of new discipline in the past, we went to pads being down 13% in inventory. When we saw the sales decline really is a testament to that new muscle that we have that obviously helped drive our margin and we were able to hit our margin and then we pulled back on expenses, sorry expenses actually came in better than we had anticipated because we are.
Speaker Change: Able to react so I think that just goes to the Testament of this organization and the agility. We have when we do have some of those misses on the top line, but really it came to that Reg price slowdown so that if I go to the comp guidance for Q2, obviously not going to speak to the months now are guiding but what I would say is when we saw an improvement in our business once we got through the clearance impact.
Jill Timm: So I think that just goes to the testament of this organization and the agility we have when we do have some of those misses on the top line, but really, it came down to that reg price slowdown. So then if I go to the comp guidance for Q2, obviously, I'm not going to speak to the months and how we're guiding, but what I would say is when we saw improvement in our business, once we got through the clearance impact, we saw a lot of that through our traffic and transactions.
Speaker Change: We saw a lot of that comes through our traffic and transactions and that was actually relatively flat as we went into March and April. So we do see that we are gaining those steps and the momentum, but we also know the companies the.
Jill Timm: And that was actually relatively flat as we went into March and April. So we do see that we are gaining those steps in the momentum, but we also know that the customer is a little bit more discerning out there. So we have to make sure we're putting our first, best step forward with that value, which you know Kohl's is known for, and that's what we're gonna go ahead and do. May did start out a little slow, like April ended, but what I will say is that we are progressing.
Speaker Change: Customer is a little bit more discerning out there. So we have to make sure were putting our first best step forward with that value with Kohl's is known for and Thats. What were going to go ahead and do made did start out a little slow like April ended, but what I will say is that we are progressing we're seeing ourselves pick up particularly in that spring seasonal coming a little bit later, we continue to see them.
Jill Timm: We're seeing our sales pick up, particularly in that spring seasonal, so it's coming a little bit later. We continue to see the momentum and the strategic initiatives that Tom has outlined, and that's what's really helping us drive back to say that the rest of the year will be flat to down two, but we're still being mindful of the uncertainty in the consumer and the macro environment.
Speaker Change: Some of the strategic initiatives that Tom has outlined and that's what's really helping us drive back to say the rest of the year will be flat to down Q, but we're still being mindful of the uncertainty in the consumer and the macro environment.
Thomas A. Kingsbury: Yeah, to answer the question about what's going to drive the comps, you know, as I mentioned before, Sephora obviously is going to help us a lot. The 140 shops will be rolled out by the end of the second quarter, so that should help us a lot, building on our underpennativity category.
Speaker Change: Yes.
Speaker Change: The question about what's going to drive the comps.
Speaker Change: As I mentioned before Suppor, obviously is going to help us a lot.
Speaker Change: The balance of 140 shops will be rolled out by the end of the second.
Speaker Change: Quarter, so that should help us a lot.
Speaker Change: Building on our are Underpenetrated categories.
Thomas A. Kingsbury: As I mentioned before, our decor business was up 30%, PET was up 100%, gifting up 30%, and impulse up 60%. We opened up 100 impulse queuing lines in the first quarter. We have another 50 that we're rolling out in the second quarter and 200 in the third quarter. Obviously, based on the performance of that, that'll be good.
Speaker Change: As I mentioned before our core business is up 30% that was up 115 up 30 impulse up 60, we opened up a 100.
Impulse queuing lines in the first quarter, we have another 50 that we're rolling out.
Speaker Change: In the second quarter and 200 in the third in the third quarter. So obviously that based on the performance of that that'll be that'll be good.
Yes.
Thomas A. Kingsbury: We're doing well in juniors from a regular price perspective with all the new market brands that we're introducing. The women's dress business has been very, very strong. Min Sutings has been very good as well.
Speaker Change: We're doing well in.
Speaker Change: Juniors from a regular price perspective, with all the new market brands that we're introducing the.
The women's dress business has been very very strong <unk>.
Speaker Change: <unk> has been very good as well.
Thomas A. Kingsbury: One of the things that we're working diligently on, as I mentioned, is how to rebuild our active business to the level that we want it to be. But it was really negatively impacted by a significant amount of clearance in the first quarter as well. We ended inventories at the end of 22 high inactive. But So we have a lot of things that are working that are going to help the comps. Overall, and obviously, you know, we're working diligently on that.
Speaker Change: One of the things that we're working diligently on as I mentioned is how to rebuild.
Speaker Change: To rebuild our active business.
Speaker Change: So the level of that.
Speaker Change: We want it to be.
Speaker Change: But it was really negatively impacted by a significant amount of clearance in the first quarter as well.
Speaker Change: We ended inventories at the end of 'twenty two high inactive.
But.
Speaker Change: So we have a lot of things that are working that are going to help the comps.
Speaker Change: Overall.
Speaker Change: And obviously.
Speaker Change: We're working diligently on that.
Speaker Change: Thank you best regards.
Speaker Change: Thanks Oliver.
Operator: Our next question comes from Mark Altschwager from Baird. Please go ahead; your line is open.
Speaker Change: Okay.
Speaker Change: Our next question comes from Mark <unk> from Baird. Please go ahead. Your line is open.
Thomas A. Kingsbury: Good morning. Thank you for taking the time to answer my questions. So the 600 basis point headwind on the lower clearance, how much of that would you categorize as somewhat of an one time as you cycled through last year's actions? And how should we think about that moving forward? I guess you should continue to manage inventory very lean. So, you know, would it be fair to think that reduced clearance product availability would be a headwind moving forward? And then, I mean, bigger picture, do you think you're losing a cohort of your customer base to other retailers as you manage to this much lower level of clearance products? And what are you doing to re-engage that customer and make sure they still see value in the overall assortment with that clearance product no longer being there to such an extent?
Mark Andrew Rupe: Good morning, Thank you for taking my questions.
Mark R. Altschwager: The 600 basis point headwind on the lower clearance how much of that would you categorize as somewhat one time as you cycled last year's actions and how should we think about that moving forward I guess you continue to manage inventory very lean so.
Would it be fair to think that reduced clearance product availability.
Speaker Change: It would be a headwind moving forward and then.
Speaker Change: Bigger picture do you think.
Speaker Change: Youre, losing a cohort of your customer base to other retailers as you manage to this much lower level of clearance product and what are you doing to re engage that customer and make sure they still see value in the overall assortment.
Speaker Change: With that clearance product no longer being there too to such an extent.
Thomas A. Kingsbury: Well, first of all, the clearance levels going into 23. It's totally unique. It was a once-in-a-lifetime clearance level because of trying to clean everything up as we went into 23. So it's highly distorted.
Speaker Change: Well first of all the clearance levels going into 'twenty three.
Speaker Change: Totally unique.
Speaker Change: It was a once in a lifetime clearance level.
Speaker Change: Because of trying to clean everything up as we went into 'twenty three so as highly distorted.
Thomas A. Kingsbury: As a percent of the total of our business, it was obviously larger than ever, so we never want to get to that level. We want to sell the appropriate amount of clearance, but we're focused on regular price as well. The situation going into 23 was totally unique, and we're never going to get to those levels.
Speaker Change: As a percent of total.
Speaker Change: Of our business. It was it was obviously larger than ever.
Speaker Change: No.
Speaker Change: We never want to get to that level, we want us we want to sell the appropriate amount of clearance.
Speaker Change: But.
Speaker Change: Our focus on on Reg.
Speaker Change: Price as well, but.
Speaker Change: The situation going into 'twenty three was totally unique.
Speaker Change: We're never going to get to those levels, it's always going to be part of our business.
Thomas A. Kingsbury: It's always going to be part of our business, but, you know, reducing our inventories overall, as we were down 13% at the end of the first quarter. We're not going to have as much clearance, and we're going to go after the customer with, you know, building our Sephora business and building our underdeveloped, underpenetrated categories in home. We're going to go after gifting. We're going to go after impulse. We're going to continue to broaden our mix and apparel to include even more polished casual and dress.
Speaker Change: But.
Speaker Change: Reducing our inventories overall, we were down 13%.
Speaker Change: At the end of the first quarter.
Speaker Change: We're not going to have as much clearance and we're going to work on.
Speaker Change: We're going to go after the customer with building, our sephora business and building our.
Speaker Change: Our underdeveloped underpenetrated categories in home, we're going to go after gifting and we're going to go after impulse, we're going to continue to broaden our mix in apparel to include even more polished casual and dress.
Thomas A. Kingsbury: So we, you know, we have a lot more than clearance. You don't wanna pivot, or you just don't want to have a business that has an underlying huge clearance position because that just shows, I mean, those are mistakes, you know. So, you know, you, we want to focus on the regular price.
So.
Speaker Change: Yes.
Speaker Change: We have a lot more than clearance you don't want to.
Speaker Change: Pivot or you just don't want to have a business that has a underlying huge clarence.
Speaker Change: Position because that just shows I mean those are mistakes.
Speaker Change: So we.
Tom: We want to focus on on regular price business, Yes, I think just to summarize it I would assess the whole 600, mark as it relates to number one time to Tom's point coming off of what I would say is a highly unique one time situations of clearing out the inventory and we're going to have the regular balance of clearance going forward, though I think it has not had one.
Jill Timm: Yes, I think just to summarize it, I would assess the whole 600 mark as really kind of a one-time thing, to Tom's point, coming off of what I would say is a highly unique one-time situation of clearing out the inventory. And we're going to have the regular balance of clearance going forward, so I think it's not a headwind, it's not a tailwind, because it's just, as Tom mentioned, part of the business, and that's really how we looked at it when we gave the guidance.
Jill Timm: Yes, I think so.
Speaker Change: It's on a tailwind because it's just as Tom mentioned part of the business and Thats really how we looked at it when we gave the guidance I think the other thing is the newness, we are bringing in and it's really working and Thats really that discovery element that we're bringing with these market brand and having a faster turn which we were able to improve our turn quite significantly in the quarter and that's really what we are.
Jill Timm: I think the other thing is the newness we're bringing in, and it's really working, and that's really that discovery element that we're bringing with these market brands and having a faster turn, which we were able to improve our turn quite significantly in the quarter. And that's really what we're looking to do, make the reg price inventory work harder for us. It's a better margin, we can deliver newness more frequently, so it's really just a better model that we are moving into, which will be a healthier business for us to be in and really deliver for the customer.
Looking to do with making the right price inventory work harder for us to better margin, we can deliver newness more frequently so it's really just about our model that we are moving into which will be a healthier business for us to be in and really deliver for the customer but not for lack of value. We're still going to have value. We're starting to find out on the clearance rack youre going to find out when you come in and find new brand.
Jill Timm: But not for lack of value; we're still going to have value; we're just not going to find it on the clearance rack. You'll find it when you come in and find new brands, brands you're not expecting, and have them at a great price.
Speaker Change: Brands are not expecting and haven't yet at a great price.
Jill Timm: And Jill, with the reduced comp outlook for the year, can you speak to any incremental opportunities you see on the cost side of the equation? And then is the 7% to 8% still the right way to think about longer term and any help in bridging the kind of that 400 basis points of expansion versus what you're planning for this year? Thank you.
Speaker Change: Thank you and Jill with the reduced comp outlook for the year can you speak to any incremental opportunities you see on cost side of the equation and then is the 7% to 8% still the right way to think about longer term and just any help in bridging the kind of that 400 basis points of expansion versus what you're planning for this year.
Speaker Change: Thank you.
Speaker Change: Absolutely I think we held our margins are still on the 40 or 50 of which I think puts us over that 37, Mark which we spoke about is being at the high end of that bridge in the 7% to 8%. So we feel really confident with that and everything else.
Jill Timm: Thank you, on Amgen's right, and Reg Price Selling is really helping us continue to drive the margin. And that's really what you're going to continue to see as we go through the organization. So I feel very good with the margin. We held that guide. It's within the 7 to 8 percent framework that we outlined, you know, a couple years ago. From an SG&A perspective, you saw the numbers came in better for Q1. We did say they'd be down in that one and a half range for the rest of the year.
Speaker Change: On inventory.
Speaker Change: And Reg price selling is really helping us continue to drive the margin and Thats really what youre going to continue to see us discipline through the organization. So I feel very good with the margin. We held that guide is within the 7% to 8% framework that we outlined a couple of years ago from an SG&A perspective, you saw the numbers came in better for Q1, we did.
Speaker Change: They'd be down on that one and a half range.
Tom: For the rest of the year. So we know we're going to pull back commensurate with the sales being down is something that we're really good at Kohl's, we have a great cost discipline culture, we're always looking for operational efficiencies across the organization and so this is where we will play into that game, we will pull back on some of these expenses were still going to invest in growth initiatives, though as Tom mentioned, we're rolling out the <unk>.
Jill Timm: So we know we're going to pull back commensurate with the sales being down. It's something that we're really good at at Kohls. We have a great cost discipline culture. We're always looking for operational efficiencies across the organization. And so this is where, you know, we'll play into that game. We'll pull back on some of these expenses. We're still going to invest in growth initiatives, so as Tom mentioned, we're rolling out the impulse lines. We're going to do Babies R Us, and we have the Sephora shops.
Tom: <unk> lines were going to do babies R. Us and we have the sephora shops those are important and so we're going to make sure that we're putting the expenses, where we're going to get that return back and those are key projects that are going to be drivers for sales as we move forward the big piece of getting back to 7% to 8% right now is going to be growth and that is really a huge focus of what we're looking at a lot is initially.
Jill Timm: Those are important. And so we're going to make sure that we're putting the expenses where we're going to get a return on them. And those are key projects that are going to be drivers for sales as we move forward. The big piece of getting back to 7% to 8% right now is going to be growth. And that is really, you know, a huge focus of what we're looking at. A lot of these initiatives, like we mentioned, are working.
Tom: Like we mentioned are working but we also are addressing the fact that we have opportunities and we're well versed in what those opportunities are and we're working towards correcting those and when we get back to growth Thats when youre going to see that margin expansion that will happen, but it will obviously take some time.
Jill Timm: But we also are addressing the fact that we have opportunities, and we're, you know, well-versed in what those opportunities are, and we're working towards correcting those. And when we get back to growth, that's when you're going to see that market expansion happen. But it will obviously take some time.
Operator: Thanks again. Best of luck.
Speaker Change: Thanks again best of luck.
Speaker Change: Thank you.
Operator: Our next question comes from Matthew Boss from J.P. Morgan. Please go ahead; your line is open.
Speaker Change: Our next question comes from Matthew Boss from Jpmorgan. Please go ahead. Your line is open.
Thomas A. Kingsbury: Great, thanks. So Tom, hey, Tom, could you elaborate maybe on first quarter trends that you saw at stores versus digital and how best to think about the sequential cadence across channels that you're expecting in the second quarter versus the back half of the year? And then Jill, I just wanted to circle back on trends that you cited in May relative to what you saw in March and April with reg price selling.
Matthew Robert Boss: Great. Thanks.
Matthew Robert Boss: Okay.
Matthew Robert Boss: Hey.
Speaker Change: Tom could you elaborate maybe on first quarter trends that you saw at stores versus digital and how best to think about the sequential cadence across channels that youre expecting in the second quarter versus back half of the year and then Joe I just wanted to circle back.
Speaker Change: On trends that you cited in May relative to what you saw in March and April with Reg Reg price selling.
Thomas A. Kingsbury: As far as the digital-to-stores business... We're closing the gap, you know. As you know, stores way outperformed digital last year. And in the first quarter, they were much closer together. Going forward... And incorporated in our guidance is the fact that we see digital in stores performing at the same, similar levels in terms of all the heavy promotions that we did previously are behind us now, and now it's, it's obviously normalizing, and we should see you know digital in stores.
As far as the.
Speaker Change: The digital two stores business.
Speaker Change: We're closing the gap.
Speaker Change: As you know.
Stores way outperformed digital last year.
Speaker Change: And then the first quarter they were they were much closer together going forward.
Speaker Change: Incorporated in our guidance is the fact that we see.
Digital and stores performing at the same similar levels in terms of.
Speaker Change: All the heavy promotions that we did.
Speaker Change: Previously are behind US now and now it's obviously normalizing and we should see.
Speaker Change: Yes.
Speaker Change: Digital and stores come together.
Jill Timm: And then in terms of the trends for May, I think we're really past the clearance component of that, Matt, in February and early March. So as we saw the softening in late March and April, I think that's just really the regular price business, the core business. I mean, clearance is a small percentage once we get through the beginning part of the quarter. And, like I mentioned, we saw the softness progress into May, but we are seeing progressive improvement as the month has gone on, particularly in that spring seasonal. It's coming a little bit later, but it's coming.
Speaker Change: And then in terms of the trends for me I think we're really past the clearance component of that Matt and February into early March. So as we saw the softening in late March and April I think that's just really the regular price business. The core business I mean clearance is a small percentage once they get through the beginning part of the quarter and like I mentioned, we saw this off.
Speaker Change: This progress into May, but we are seeing progressive improvement as the month has gone on particularly in that spring seasonal it's coming a little bit later, but it's coming and then the momentum that we've called out the flora home decor gifting impulse continuing to still be very productive. So as we're making some of those corrections that Tom mentioned.
Jill Timm: And then the momentum that we've called out, Sephora, home decor, gifting impulse, continuing to still be very productive. So as we're making some of those corrections that Tom mentioned, particularly new to start setting in small electronics, you know, leaning into some more value in that space as well around home. And then impulse lines; we'll have more of them. We have 140 Sephora shops that will be opening in Q2. And then you have Babies R Us, that really is a Q3 endeavor as well. So there is a lot of newness and new initiatives coming in front of us as well that help give us confidence in the flat to down for the rest of the year.
Speaker Change: Particularly like newness start studying and small electrics leaning into some more value in that space as well around home and then impulse line. We will have more of them. We have 140 sephora shops that will be opening in Q2, and then you have babies R. Us that really is a Q3 endeavor as well so a lot of newness and new initiatives coming.
Speaker Change: In front of us as well that helps give us confidence in that.
Speaker Change: Flat to down here for the rest of the year.
Jill Timm: Great. And then, Jill, just with the operating margin setback for this year's guide, is there any change for the longer term, the 7 to 8 percent, or do you see today's change as more transitory?
Speaker Change: Great and then Joe just with the operating margin setback for this year's guide is there any change to longer term that the 7% to 8%.
Speaker Change: Or do you see today's change is more transitory.
Jill Timm: I would say there's not been a change. We do believe we can get to 7% to 8%. I think a couple of things. Obviously, remember, we do have the CFPB legislation beginning in August in our number. We think that we have offsets that we're working towards, but that obviously is weighing in this year. When we have more clarity on that, we'll give an update. But at this point in time, I think there's still a lot of uncertainty that remains in the court system.
I would say there's not a change we do believe we can get to 7% to 8% I think a couple of things. Obviously remember we do have the CFPB legislation beginning in August in our number.
Speaker Change: I think that we have offsets that we're working towards but that obviously weighing in this year. When we have more clarity on that we'll give an update but at this point in time I think there's still a lot of uncertainty that remains in the court system.
Jill Timm: That's a step back, but I think we can get to 7% to 8%. Like I mentioned, we're already at over 37 for our gross margin, so that was above the bracket.
Speaker Change: That's a one step back, but I think we can get to 78% like I mentioned, we're already at 30 over 37 for gross margin. So that was above the bracket as you can see in SG&A. The discipline is there I mean, our numbers are down year on year and I think if you look over the last several years, our SG&A really hasnt risen we've held it despite the inflation among wages and so.
Jill Timm: As you can see in SG&A, the discipline is there. I mean, our numbers are down year on year. And I think if you look over the last several years, our SG&A really hasn't risen. We've held it despite the inflation of wages and some of these other projects that we're putting in. So we've got that discipline.
Speaker Change: All of these other projects that we're putting in so we've gotten that discipline. It really comes to growth and I think that's why the biggest focus here is how we continue to drive topline and once we get that growth the financial structure is sound and it's there and it's ready and as soon as that growth happens you're going to see that expansion from an operating margin perspective, but it will be more long term as we step into.
Jill Timm: It really comes down to growth, and I think that's why the biggest focus here is how we can continue to drive the top line. And once we get that growth, the financial structure is sound, and it's there, and it's ready. And as soon as that growth happens, you're gonna see that expansion from an operating margin perspective, but it will be more long-term as we step into the growth, and we can take advantage of that.
Speaker Change: The growth and we can take advantage of that.
Operator: Great color. Best of luck.
Speaker Change: Great color best of luck.
Speaker Change: Thank you.
Operator: Our next question comes from Chuck Grom from Gordon-Haskett. Please go ahead. Your line is open.
Speaker Change: Our next question comes from Chuck Grom from Gordon Haskett. Please go ahead. Your line is open.
Jill Timm: Thanks very much. Good morning. I just wanted you guys to talk about the health of your customers today across income cohorts, and then maybe we could talk about trends across apparel and footwear in the quarter relative to the down four. I don't know if you want to unpack it, regular versus clearance, or if there's a way to split it out just to assess the health of those two parts of your business. Thanks.
Charles P. Grom: Hey, Thanks, very much good morning.
Charles P. Grom: I just wonder if you guys can talk about the health of your.
Charles P. Grom: Your customer today across income cohorts and then.
Charles P. Grom: Maybe if we could talk about trends across apparel and footwear.
In the quarter relative to the down for I don't know, if you want to own pocket regular versus clearance or if theres a way to split it out just to assess the health of those two parts of your business. Thanks.
Jill Timm: So I think, you know, we know the customers are definitely feeling pressure. You've heard that across the retail space, particularly for us. It continues to be that middle-income customer that's been the most impacted.
Speaker Change: So I think we know the customers are definitely feeling pressure you've heard that across the retail space, particularly for us. It continues to be that middle income customer. That's been the most impacted I think thats been a pretty consistent theme for hours. So that's where we really have to lean into value for that customer and make sure we're delivering.
Jill Timm: So that's where we really have to lean into value for that customer and make sure we're delivering them value, whether that be through newness of value or really through our core customers who enjoy the coupon or going into deeper pricing events, but making sure that they know that they can come and get value because, obviously, their dollar has to be. Another positioning is private brands. It provides an opening price point for us.
Speaker Change: Value, whether that be through newness of value or really through our core customers, who enjoy the coupon or going into deeper pricing events, but making sure that they know that they can come and get value. Because obviously the dollar has to be further another positioning as private brands. It provides an opening price point for us So I think.
Jill Timm: So I think that's definitely a place that we can lean into from that perspective. You know, we've done a lot with our key high value pricing, where we're able to take some better pricing on our opening price point brands, like Jumping Beans and Tech Gear. And as Tom indicated, we're really getting credit from customers for delivering value as we go out and talk to them. And also, in the quarter, our proprietary brands, our reg price was flat.
Speaker Change: That's definitely a place that we can lean into from that perspective, we've done a lot with our key high value pricing, we're able to take some better pricing on our opening price point brands like jumping beans, and tech gear and as Tom indicated, we're really getting credit from our customer for delivering value as we go out and talk to them and also in the quarter.
Speaker Change: Our proprietary brands, our Reg price business was flat. So we can see that it's really resonating with them as we move into that space and we're able to take those marked down to happen. So that's really going to focus on is making sure that we can.
Jill Timm: So we can see that it's really resonating with them as we move into that space, and we're able to take those marks down. So that's really going to focus on making sure that we can continue to deliver value to that customer, because we know at this point in time, their dollar has to be stretched a lot further, and particularly for that middle-income customer who's really cortical.
Speaker Change: Turning to deliver value to that customer because we know at this point in time. The dollar has to be stretched a lot further and particularly in that middle income customer who's really quarter calls.
Thomas A. Kingsbury: As far as trends go, I'm just going to put it all together between clearance and regular price. We're seeing great trends in expanding the assortments in apparel to have more and more polished casual and dress-up products overall. The customer's really looking for that. People are going back to work.
Speaker Change: As far as trends go.
Speaker Change: We're seeing that I'm, just kind of put it altogether between clearance and regular price.
Speaker Change: We're seeing great trends and expanding the assortments in apparel to have more and more polished casual and <unk>.
Speaker Change: Dress up product overall the customers.
Speaker Change: Really looking for that.
Speaker Change: People people are going back to work people are.
Thomas A. Kingsbury: People are obviously spending time on special occasions, etc. So not only is the polished casual and dressy good in apparel, but we're also doing well in the footwear business as well. So that whole package is trending very well. The one area that's negatively impacting us from a trend perspective, as I mentioned, is our active business. We've done well with our own products, TechGear, and Flack.
Speaker Change: Obviously.
Speaker Change: Spending time.
Speaker Change: Special occasions et cetera, so not only is the polished casual and dress code in apparel. We're also doing well in the footwear business as well so that full package is trending.
Speaker Change: Very well the one area that's negatively impacting us from a trend perspective as I mentioned.
Speaker Change: As our active business.
Speaker Change: We've done we've done well with our our own product tech gear and flex, but the balance of it.
Thomas A. Kingsbury: But the balance of it, we have a lot of work to do in order to turn that business around overall. We really think it's an important business. We don't think it should be in lieu of the more polished casual and dress, but it's a big category, and we're working on that a lot.
Speaker Change: We have a lot of work to do in order to.
Speaker Change: To to turn that business around overall, we really think it's an important business, we don't think that we.
Speaker Change: We don't think it should be in lieu of the <unk>.
Speaker Change: Alex casual and dress, but it's it's a big category and we're working on that a lot whenever we have some special things in our Assortments.
Thomas A. Kingsbury: Whenever we have some special things in our assortments, as I mentioned at home, that really helps us. The gifting business is really trending well. We've made a big emphasis in our stores on the gifting side of it. Our Mother's Day business was very good. We anticipate a good Father's Day business. The Americana product is selling very well also. So the impulse thing, that's a big opportunity for us in the future, and again, it's up like 60% already. So that's pretty much the trends we're seeing. Obviously, the beauty trend is huge as well. I thumbs it up.
Speaker Change: As I mentioned in that.
Speaker Change: That really helps us.
Speaker Change: The gift the gifting business is really trending well, we've made a big emphasis in our stores on the gifting side of side a bit.
Like our mothers day business was very good we anticipated good fathers day.
Speaker Change: Business Americana.
Speaker Change: Product is selling.
Speaker Change: Very well.
Also so.
Speaker Change: Pulse thing.
Speaker Change: That's a big opportunity for us.
Speaker Change: In the future and again, it's up like 60%.
Speaker Change: Already so.
Speaker Change: So that's pretty much the trends, we're seeing obviously the beauty trend is huge.
Speaker Change: As well so.
Speaker Change: That's sort of sums it up.
Jill Timm: Yeah, that's very helpful. Thank you, Tom. Just one for Jill on the model.
Speaker Change: Yes, that's very helpful. Thank you Tom just one for John on the model.
Jill Timm: How should we think about the cadence and phasing of comps over the balance of the year? Should we think about it somewhere in the down 1% to 3% range by quarter, or are you anticipating fourth quarter to be a little bit lower because of the five fewer days? And then, on credit, you may have touched on this earlier. I hopped on a couple minutes late. Are you still anticipating down mid-team dollar growth in 24?
Speaker Change: How should we think about the cadence and phasing of of comps over the balance of the year should we think about it somewhere in the down 1% to 3% range by quarter or are you anticipating fourth quarter to be a little bit lower because of the five fewer days and then on credit you may have touched on this earlier I hopped on a couple of minutes late are you still anticipating down.
Speaker Change: Mid teens dollar growth and 24, thank you.
Speaker Change: Sure I'll start with the second one we are there is no change from a credit perspective. It came right in line with our expectation in terms of the quarter. We will expect that we still include as I mentioned, the CFPB legislation in that number and Thats, obviously, why it's down mid teens for the year. So the back half as much more down due to the legislation.
Speaker Change: Sumption starting on August 1st.
And then I think in terms of.
Speaker Change: The comp cadence.
Speaker Change: We're not really giving it I think we feel really good with the flat to down to the one thing that I would tell you is we do have new initiatives in front of us and so as you think of Q2 to Q3 and then in holiday, we're opening more sephora shops in Q2, so that obviously would benefit partly Q2 and in the back half of the year babies R us really.
Speaker Change: Opening in that Q3 periods benefit in Q3, and then Q4 and then as we talked about with impulse will have.
Speaker Change: <unk> stores in Q2 opening and I think it's like another 200 in Q3 to bring it to the 350 for the year, so that too in front of US and then gifting just in general I think has been working we've called it out in terms of Valentine's day, and Easter and mother's day. So we're really taking advantage of all of those periods and I think we're getting better at it.
And having a much bigger presence in the stores and really resonated with customers know we can be found for those type of holidays and those types of guests so, particularly in the holiday period, I think youre going to see a much bigger set from that perspective and that should be a benefit as well so really leaning into those key initiatives and then I just want to call. It the fact that our women's business our <unk> business.
Speaker Change: <unk> was up 3% and we haven't seen and talked about women's and juniors being positive in any sense in a long time, so really continuing to build off of that momentum is while we have dress shops like Kevin mentioned in 700 stores those set in Q1, but we're expanding them as we move into Q2. So I just think there's going to be some build as these initiatives come throughout the year.
Speaker Change: But I guess I'm not going to give you what that cadence looks like I'll, let you kind of to start how you feel that should be.
Speaker Change: Alright, Thanks, Joe appreciate it thank you okay.
Jill Timm: Thank you.
Speaker Change: Our last question today will come from Dana Telsey from Telsey Group. Please go ahead. Your line is open.
Jill Timm: I'll start with the second one. We are, there's no change from a credit perspective. It came right in line with our expectations for the quarter. You know, we'll expect that.
Jill Timm: We still include, as I mentioned, the CFPB legislation in that number, and that's obviously why it's down mid-teens for the year. So the back half is much more down due to the legislation assumption starting on August 1st. And then I think in terms of and G.K.A.P.K.I.D.
Dana Lauren Telsey: Hi, Good morning, everyone. Good morning, Hi.
Jill Timm: You know, we're not really giving it. I think we feel really good with the flat to down two. The one thing that I would tell you is we do have new initiatives in front of us. And so, as you think of Q2 to Q3 and then the holiday period, we're opening up more Sephora shops in Q2, so that obviously would benefit Q2 and the back half of the year. Babies R Us really opened in that Q3 period to help benefit from Q3 and then Q4.
Speaker Change: Hi, Tom why was <unk>.
Speaker Change: Hi, Mark.
Speaker Change: I will go you had talked about enhancements being made in stores, whether its the queuing lines.
Jill Timm: And then, as we talked about with Impulse, we'll have 50 stores in Q2 opening, and I think it's another 200 in Q3 to bring it to 350 for the year. So we have two in front of us.
Speaker Change: Anything you're seeing in stores with these strategic initiatives.
Speaker Change: That is that you expect to help as we go through the balance of the year and can you talk about the difference in performance of the digital channel versus the stores channel and what Youre seeing and I think you were thinking about either some remodels of downsizes are new stores, how should we be thinking of that in light of the current environment. Thank you.
Jill Timm: And then gifting just in general, I think, has been working. We call it out in terms of Valentine's Day, Easter, and Mother's Day. So we're really taking advantage of all those periods, and I think we're getting better at it and having a much bigger presence in the stores and really responding with customers to know we can be found for those types of holidays and those types of gifts. So, particularly in the holiday period, I think you're going to see a much bigger set from that perspective, and that will be a benefit as well.
Jill Timm: So really leaning into those key initiatives. And then, I mean, I just want to point out the fact that our women's business, our regular business, is up 3%. And we haven't seen and talked about women's and juniors being positive in any sense for a long time. So really continuing to build off of that momentum as well. We have dress shops, like Taman mentioned, in 700 stores, those opening in Q1, but we're expanding them as we move into Q2.
Jill Timm: So I just think there's going to be some build-up of these initiatives throughout the year. But I guess I'm not going to give you what that cadence looks like. I'll let you kind of discern how you feel that should be.
Operator: All right. Thanks, Jill. I appreciate it. Thank you.
Operator: Our last question today will come from Dana Telsey from the Telsey Group. Please go ahead; your line is open.
Speaker Change: To answer the.
Speaker Change: The last question first.
Speaker Change: We're doing a regular maintenance on our stores this year, but we're not going to we're not going to have any major remodels or any resets in the stores right now.
Speaker Change: <unk>.
Speaker Change: The business in totality right now.
Speaker Change: So.
Speaker Change: That's really key in the digital versus store business.
Thomas A. Kingsbury: Hi, good morning, everyone. A while ago, you talked about enhancements being made in stores, whether it's the queueing lines, anything you're seeing in stores with these strategic initiatives that you expect to help as we go through the balance of the year. And can you talk about the difference in performance of the digital channel versus the physical channel and what you're seeing? And I think you were thinking about either some remodels or downsizes or new stores. How should we be thinking about that in light of the current environment? Thank you.
Speaker Change: We're really looking at it we're really looking at.
Thomas A. Kingsbury: Answer the first and last question first. We're doing our regular maintenance on our stores this year, but we're not going to have any major remodels or any resets in the stores right now, focusing on the business in totality right now. So that's really key. The digital versus store business is something we're really looking at being comparable in terms of trends. There was a much shorter, there was a much smaller spread between digital and stores in the first quarter, but, You know, it's, you know, we think going forward, they're going to perform at a similar level, as I mentioned earlier in the call.
Speaker Change: Them being comparable in terms of trends.
Speaker Change: There was a much shorter.
Speaker Change: There is a much.
Speaker Change: Smaller spread between digital and stores.
Speaker Change: In the first quarter.
Speaker Change: But.
Speaker Change: We think going forward, they're going to do.
Speaker Change: Theyre going to perform at a similar level as I mentioned.
Speaker Change: Earlier in the call.
Jill Timm: Yeah, and then I would just, I would say, you know, we've talked a lot about in-store enhancements like you talked about, but there are things in digital that we're working on as well, which is why we think they'll really run more in parity. We're doing a lot of scaling initiatives around targeting initiatives in terms of when you go out in the store or on the site, if we're out of stock on something, how can we give you the next best choice? A lot of this, we're using AI to help us power do that.
And then I would just I would say we've talked a lot about in store enhancements like you talked about but there are things in digital that we're working on as well, which is why we think they'll really run more imparity, we're doing a lot of scaling initiatives around targeting initiatives in terms of when you got in store on the site if were out of stock on something how can we give you. Your next best choice a lot of the.
We're using AI to help us power do that we're getting more personalized and relevant content recommendations based on consumer behavior. So really trying to work on that side of it from a conversion perspective, and then we're improving our search and product recommendations. We are moving to a new platform there as well. So I think the enhancements we are bringing in store also complemented with a lot of enhancements we are doing on the <unk>.
Jill Timm: We're doing more personalized and relevant content recommendations based on consumer behavior. So we're really trying to work on that side of it from a conversion perspective. And then we're improving our search and product recommendations; we're moving to a new platform there as well. So I think the enhancements we're bringing in-store are also complemented by a lot of enhancements we're doing on the digital side, and that's why we think they can run more at parity.
Speaker Change: <unk> side and Thats why we think they can run more at parity and then just to complete out. Your question you asked about new stores I think we have five new stores. This year that are opening one <unk>, what I would say is youre not going to see a lot of it is new store space from us in this year or the upcoming years I think really right now we want to get that formula right in our stores, we're making a lot of changes and a lot of enhancements.
Jill Timm: And then just to complete your question, you asked about new stores. I think we have five new stores this year that are opening one relo. What I would say is you're not going to see a lot of new store space from us this year or in the coming years. I think, really, right now, we want to get that formula right in our stores. We're making a lot of changes and a lot of enhancements.
Jill Timm: I do think you're going to see that smaller store as we move forward, but we have a lot of work to do there, I think, within the 1,200 stores we own today. So you won't see a lot of newness there until we get that formula right. And then we do think there is opportunity, it'll just be more from a long-term perspective. Did I answer your first question now?
Speaker Change: I do think youre going to see that smaller store as we move forward, but we have a lot of work to do there I think within that.
Speaker Change: 1200 stores, we own today, so you won't see a lot of newness there until we get that Formula right and then we do think there is opportunity. It will just be more on a long term perspective to answer your first question now.
Thomas A. Kingsbury: To answer your first question, though, in-store improvements, as I mentioned earlier, you know, the impulse business is really growing. It's up 60%.
Sure.
Speaker Change: And store in store improvements as I mentioned earlier.
Speaker Change: The impulse business is really growing sub six it's up 60%. We opened 100 queuing lines in the first quarter doing 50 in the second quarter and 200 and.
Thomas A. Kingsbury: We opened 100 queueing lines in the first quarter, 50 in the second quarter, and 200 in the third quarter, and it's doing very well. And, you know, over the next couple of years, we plan to roll it out to all of our stores where it makes sense in general. We've really built the gifting centers. They're much more robust than they were before. We're taking the junior business and we're moving it from within the women's business to the front of the store where it used to be, so that when the customer comes out of the support shop, they walk right into juniors, and we're working really hard on making sure that we have more trend products in the juniors area, maximizing our efforts with the market brands overall. So, you know, the stores, I think, are coming together very nicely, and we feel good about what's going to happen in the future.
Speaker Change: In the third quarter.
And it's doing very well.
Speaker Change: And over the next couple of years, we plan to roll it out to.
Speaker Change: All of our stores, where it makes sense in general.
Speaker Change: Really built the gifting centers.
Speaker Change: We're much more robust than they have been before we're taking the junior business and we're moving it from within the women's business to the front of the store where it used to be so that when the customer comes out of.
Speaker Change: To support our shop, they walk right into juniors and we're working really hard on making sure that we are more trend product.
In the juniors.
Speaker Change: Area maximizing our efforts with them with the market brands overall so.
Speaker Change: The stores I think are coming together very nicely.
Speaker Change: We we feel good about.
Speaker Change: What's going to happen in the future.
Thomas A. Kingsbury: Thank you. Thank you. I think that's it.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Operator: Thank you to everyone for listening on the call today. Have a good day. Bye.
Speaker Change: I think thats. It. Thanks, Thank you to everyone for listening on the call today have a good day bye.
Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Speaker Change: This concludes today's call. Thank you for your participation you may now disconnect.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.