Welcome to the Kohl's Q4 Year End 2015 Earnings Release Conference Call. Certain statements made on this call, including projected financial results, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Kohl's intends forward-looking terminology such as believes, expects, may, will, should, anticipates, plans or similar expressions to identify forward-looking statements. Such statements are subject to certain 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 Kohl's other filings with the SEC, all of which are expressly incorporated herein by reference. Also, please note that the replays of this recording will not be updated, so if you are listening after February 25, 2016, it is possible that the information discussed is no longer current. At this time, all the participant phone lines are in a listen-only mode. Later, we'll conduct a question-and-answer session. As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Mr. Wes McDonald, Chief Financial Officer of Kohl's Department Stores. Please go ahead. Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: Thank you. Good morning. With me today is Kevin Mansell, our Chairman, CEO and President. I'll start today's call by walking through our operational results. Kevin then will provide some more details on our Greatness Agenda initiatives, and then we'll open up the call to your questions. As we announced earlier this month, comp sales increased 40 basis points for the quarter. Though we were pleased to report our fifth consecutive…

Introducing Lorraine Hutchinson of Bank of America Merrill Lynch. Please go ahead.

Thank you. Good morning. I was hoping to get an update on some of the various facets of your sales growth program. So cosmetics, any type of update on performance in the stores that that's in, and also loyalty program metrics and how that impacted the fourth quarter? Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: On the Beauty, it's still continuing to see about a 200 basis point lift total store in the stores that we're rolling it out into. We'll complete that in the spring. We'll have all the stores done by the end of the second quarter, a little earlier than we did this year. So we feel very good about that. We're also saving money on a lot of the investment in the stores. We've cut the investment about in half because we saw the same lift in the modified, little bit less expensive version as we did in the earlier version. From a loyalty perspective, we really anniversaried that in October. We didn't expect to see any lift when we built the goal we shared with you guys on October of 2014. We didn't really count on any lift from that. They continue to spend a lot more money than non-loyalty members. Obviously, that's self-selecting, but even in like-for-like, we're still seeing a lift. So we feel very good about the loyalty program. The focus really in 2016 is to move them along the value chain, so try to get them to spend more money at Kohl's as loyalty members. And then we're working behind the scenes as we roll out our new point-of-sale system in the fall to do a better job of being able to prescreen those folks behind the scenes to pre-approve them for a Kohl's credit card and explain the great additional value they get with that. So that'll be more of the focus as we move into 2016 and 2017, not so much trying to sign up more loyalty members, although that's certainly a goal, but trying to move them into being more loyal customers either through spending more on loyalty or eventually moving them to a Kohl's credit card customer.

Thank you.

Our next question comes from the line of Matthew Boss of JPMorgan. Please go ahead.

Hey. Good morning, guys. So two questions. The first is, I guess as we think about the delta between your holiday comps which you said were up 4% and then the reversal that we saw in January, which I think you said was more weather-related, I guess, what comp are you embedding for the first quarter, and have you seen any change post all of this January fray? Kevin Mansell - Chairman, President & Chief Executive Officer: I think from a sales perspective, I would expect that the first quarter sales are pretty similar to the guidance we gave for the year. I don't really see any big change there. Probably the more noticeable difference that Wes touched on in the guidance review in the first quarter is we'll continue to have pretty significant merchandise margin pressure as we liquidate our heavier inventories coming out of the holiday season. That's really the big, big difference. Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: Yeah, I wouldn't see a lot of volatility in sales across the quarters as we move throughout the year. Let me be clear, the big issue in the fourth quarter was the first three weeks of November. January was a very minor issue. The drop in January was really related all to Winter Storm Jonas. It was about a $20 million hit, and that's basically what we finished down. So the first three weeks of November, as everybody probably mentioned either in their sales updates or in their earnings call, was very difficult to sell any cold weather apparel, and that's where the big drop versus our plan was.

Great. And then just a follow-up. So higher level, in the first chunk of store closings announced today, how do you view the chain today? Do you see additional closings over time? And then, is there anything structurally that you guys think you can execute differently or make changed if you were a private company versus a public company? Kevin Mansell - Chairman, President & Chief Executive Officer: On the store closures, as you know, Matt, this is probably the first experience we've had closing more multiple number of stores, and it does involve multiple markets as well. And the process that we went through to determine that certainly involved looking at the total sales in the store and the momentum in the sales in the store because that's pretty critical. Is the store treading water or headed down? Second, most importantly probably, the market view. So, we took a really critical look at every single one of our markets and tried to make a determination of where we had significant store overlap in a trade area that we were not generating incremental sales in, and stores that perhaps were being impacted more by our omnichannel initiatives. And obviously, also involved in it is cost review. And so stores that we really didn't see the future potential to generate profitability in because of, let's say, very high rent expense came under review as well. I think that we're going to learn a lot. I mean, I think fundamentally, the answer to the question you had about additional store closures is we really don't know. I think we'll watch what happens with this process through the fall and the holiday season and we'll make another assessment as we come out of this year to make a better determination of what the…

Great. Best of luck. Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: Thanks, Matt.

Our next question comes from the line of Bob Drbul of Nomura. Please go ahead.

Good morning. Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: Good morning. Kevin Mansell - Chairman, President & Chief Executive Officer: Good morning, Bob.

Kevin, can you talk a little bit more around the marketing expenditures in terms of, you know, you said several things won't be repeated. Like, how much did you spend last year? What's the opportunity for savings versus reinvestments, and what really did you guys learn as you went through the fourth quarter around the marketing plan (31:53)? Kevin Mansell - Chairman, President & Chief Executive Officer: I mean, for the year, Bob, we spent less in marketing than we did in the prior year. So that's a good thing. To be totally honest with you, we had set a goal at the beginning of last year to have a larger reduction in ad expenditures than we ended up spending. And fundamentally, what happened there is as we got into the fourth quarter and we saw the weak, really, strength or lack of strength in our business and weakness across the board, we made the determination we need to be really aggressive in terms of ensuring that we were maximizing our traffic levels in the store. And so, on the positive side, marketing leveraged and we actually reduced our marketing spend, which is something long term, we intend to continue to do. On the negative side, I think our expectations at the beginning of the year were more optimistic than we ended up. Marketing is definitely a component part of the areas that we're looking to reduce expenses in over the course of the future years, and frankly, the key unlock there we really believe is personalization. I mean, that is going to be the driver, whether it's the application of our Yes2You Reward Loyalty Program to improve, as Wes covered, both total sales with those customers, but also a conversion over time to consider a credit card as a reasonable alternative as well, or it's just making the spend that we have around personalization more effective, regardless of whether that's print or direct mail, or the utilization of our app. So we've set goals for ourselves, and we definitely think that it's an important part. After store payroll, marketing is our single biggest expense, so we know if we're really going to reduce expenses over time, we've got to do a better job of marketing.

And as we look to 2016, on the e-commerce side, where do you see opportunities to become more efficient and improve profitability there? I mean, I think you mentioned shipping costs. But can you just talk a little bit about how you're approaching that as it continues to grow and somewhat pressure the business? Kevin Mansell - Chairman, President & Chief Executive Officer: Sure. I think two things. First and foremost, one of the big changes that we made this year, we alluded to it in the call, was the decision to reorganize our buying and planning structure and essentially bring together our e-com buying and planning teams with our brick-and-mortar buying and planning teams. And while at the time that we built a separate e-com team, it made sense for us because it was a small, but growing business, today it's a very big business. But most importantly, from a customer's perspective, she sees this through one lens. So we know that we need one view of the customer, and the way to achieve that is through one organization long term. What that means, we think, is that we'll do a better job of inventory management, as a result. So I think one way we're looking at this is inventory management more effectively, and that will include using the inventories we have in our stores to fulfill online orders. That was very successful all year last year, and it peaked in a dramatic way in the fourth quarter. And we suspect that will continue to be a big tool to both improve inventory leverage, but also make us more efficient. The other piece that we know we have to find a better long-term solution to is around fulfillment costs. And that's critical for us. And so we are investing,…

Right. Thank you very much. Kevin Mansell - Chairman, President & Chief Executive Officer: Thanks Bob.

Our next question comes from the line of Paul Trussell from Deutsche Bank. Please go ahead.

Hey, good morning, Wes and Kevin. Kevin Mansell - Chairman, President & Chief Executive Officer: Good morning.

Wes, I believe you said the national brands in 4Q were about 58% of sales, up from 52%. Could you maybe just touch on some of the initiatives you have on both the private label and the national brand side in 2016, and maybe how you might expect that to impact the mix going forward? And then just as a follow-up to that, could you touch on maybe some of the category color, a little bit more detail on how you're feeling about the juniors category, women's apparel, athletic and small electrics? Thanks. Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: Okay. I can take the category real quick. You mentioned all of our good categories, so thank you for that. Juniors had a positive comp for both the quarter and for the season. So that business has really turned it around. And they've done it the way I'd like to see all of our merchants do it. They've cut their inventory and grew their comps. So it is possible to do both. Active continues to do very, very well led by Nike, but there's other guys participating in that success as well. I would say premium electronics did much better than kitchen electrics. Kitchen electrics was a little tough in the fourth quarter, but we're growing that premium electronics area. And I would include things like active and wellness initiatives. So things like Fitbit would be included in that category as well. And then I'll let Kev talk about some of the – we have a lot of new initiatives from a private brand perspective that we're very excited about. Kevin Mansell - Chairman, President & Chief Executive Officer: I think generally, I would expect that both our national and private brand portfolios have the opportunity…

That's very helpful color. Thank you. A very quick follow-up on store closures. I think I believe you said that you will announce the actual locations by the end of March. Can you just clarify, and apologize if I missed it, when the actual store closings are likely to occur? Kevin Mansell - Chairman, President & Chief Executive Officer: Probably in June, sometime in June.

Got it. All right. Helpful. Thank you, guys.

The next question comes from the line of Mark Altschwager of Robert W. Baird. Please go ahead. Mark R. Altschwager - Robert W. Baird & Co., Inc. (Broker): Good morning. And thanks for taking the question. I was hoping you could talk a bit more about how the various revenue components of your growth agenda have been evolving. Obviously, the revenue is running below your targeted rate and new store concepts have become a bigger part of the conversation. So just trying to get a better sense of where you see the greatest opportunity for product and marketing initiatives to move the needle in 2016? Kevin Mansell - Chairman, President & Chief Executive Officer: I think generally honestly, Mark, our focus is around our existing store portfolio. That's where the improvement has to come from. And as we both have alluded to, utilizing the growth in online demand, the embracing that customers have done around our digital platform more effectively by leveraging our store base and our store inventory, is really the critical component that we need to improve on. And that has a lot of elements to it that we're focused on, everything from leveraging the inventory to improving the effectiveness in which we fulfill the orders, and as Wes pointed out, making technology drive better decisions in terms of where orders are fulfilled across the platform. So, our focus is definitely on our existing store platform. But having said that, we don't want to back down from looking at new ideas that might enhance the future for Kohl's. So, I still believe that the 35,000 square foot pilot stores that we're launching could be, long term, really important for us because they're a nod to the fact that more and more of our business is being online, and while it's fulfilled in store either through ship from store or pick up in store, that customer is starting out online. And if we can find a way to have smaller stores that are effective and still provide that platform, it just gives us a great opportunity as we look down the road in a few years. Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: Yeah, I mean, if you're just talking about comp metrics, our ability to outperform the flat to 1% is going to be predicated on our ability to improve traffic from the roughly flat that it was this year. So, I continue to believe our average unit retail will be up. It was up for the year. It was somewhat muted in the fourth quarter just due to the extreme promotional nature of the business, especially in our cold-weather merchandise as we had to liquidate merchandise. But for us to exceed the guidance that we gave, we're going to have to get traffic moving into a slightly positive direction. Mark R. Altschwager - Robert W. Baird & Co., Inc. (Broker): That's very helpful. Thank you.

And the next question comes from the line of Oliver Chen from Cowen & Company. Please go ahead.

Hi. Thank you. Kevin, on the reorganization regarding speed, what's the lower hanging fruit there? And can you brief us on lead times now versus where you may want to go, and how this may impact the merch margins? It sounds like integrated inventory is a nice opportunity. And Wes, on the 30% regarding utilizing your store network and the integration of bricks and clicks, do you think that that number will continue to rise? And was there a breakout between the mix of ship from store versus picked up? And I think if you could highlight the frontier in terms of mobile and mobile traffic, because we think that will continue to be a huge, important piece of interactivity from the customers. Thank you. Kevin Mansell - Chairman, President & Chief Executive Officer: Okay. I'll take the first, but you got a lot of questions... Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: Way more than one question. Good thing you didn't breathe a lot, so... Kevin Mansell - Chairman, President & Chief Executive Officer: Nice job, Oliver. On the reorganization, there's component parts to it, right? The first and most important part is we recognize that while the structure we had was right for the time we had it, we need a different view looking forward that reflects the way the customer looks at our business. And the customer looks at our business through one lens. It's seamless, it's omnichannel, and therefore, that's how we have to make our decisions. And so, the buying and planning decisions that we'll make will be predicated on one view, and that's the customers' view. So that's got opportunity for us I because I think it will make us more sensitive to assortment sizes, it'll make us more sensitive…

Okay. Thank you. That's super helpful. And Kevin, just lastly, personalization. I feel like this has been a topic that's come up in different ways in the past, but now seems like the right time for this being material. Can you articulate why you have conviction that personalization will really be a frontier which can drive results now? Kevin Mansell - Chairman, President & Chief Executive Officer: Well, I think the reason we're more and more convicted on this is that we've now had enough time under our belt in testing the impact of personalization across a wide variety of media platforms, everything from the utilization and conversion, opening and conversion of our emails, to the delivery of our direct mail vehicles, to the utilization that customers have around our app, which is of course highly personalized. So I think what's driving probably the stronger language about the critical nature of personalization to improving sales productivity on our advertising expense is we now have a pretty long track record of the testing and the piloting. We have to convert that now. We have to scale it and we have to apply it to every single platform we have because that to us is going to be the long-term success. It's not that unlike the localization initiatives importance to our inventory management. While we know we've got to drive down inventory per store and utilize our store inventory to help fulfill this growing online demand, we also know the most important thing we have to do is provide more localized assortments that are more attractive to the customers in the trade areas in which the stores sit.. So personalization is the most important thing that we have as a tool to drive advertising expense down over time. And given it's our second biggest expense center that's a pretty important initiative.

Okay. That's perfect. Thanks for that, and great job on all that innovation. Thanks. Kevin Mansell - Chairman, President & Chief Executive Officer: Thanks.

And our next question comes from the line of Paul Lejuez from Citigroup. Please go ahead.

Hi. Hey, thanks, guys. It's Tracy filling in for Paul. I had a question about credit. I was wondering if you've seen any change in the quality of your portfolio or like a rise in delinquencies? And what are you expecting for credit income in 2016? And then just a quick follow up on that small store format, I'm just wondering what the key areas are that you expect you'll be reducing in size in that store? Thanks. Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: We haven't seen any deterioration. Our loss rate for the year was exactly the same as last year at 3.7%. I would expect our credit income to rise modestly predicated on how successful we are at adding people to the credit file. This past year we focused a lot on loyalty and not as much on credit, and our applications were a little bit down to last year. But I would expect as we've anniversaried loyalty and we saw this in the fourth quarter, our approved applications were actually up. So that gives me confidence that we'll grow our credit file in 2016. And then the small store question? Kevin Mansell - Chairman, President & Chief Executive Officer: I think categories that will be downsized or maintained. I mean, I think generally – we haven't disclosed, Tracy, the specifics around the small stores either in terms of their locations or the category assortments that'll be inside the store. I would say generally though the way you should think about it is the broad-based categories that are contained inside of a Kohl's store will be represented in the new stores as well, but categories that have exhibited a very high level of digital demand will probably have further reductions in their space and assortment than other categories because our sense is that we can fulfill much of that in a digital way inside the store.

Got it. Thanks a lot, guys. Kevin Mansell - Chairman, President & Chief Executive Officer: Thanks.

And the next question comes from the line of Neely Tamminga of Piper Jaffray. Please go ahead. Kayla R. Wesser - Piper Jaffray & Co (Broker): Great. Good morning. This is Kayla Wesser on for Neely this morning. Just two quick questions. One about loyalty. I know you mentioned that they spent a lot more in the quarter. I'm just curious if you could give any more color on the bounce-backs, maybe in post-holiday especially if you saw the visits – return visits or the spend that you were expecting maybe outside of the winter impacted areas? And then also just, buy online pick up in store, where are the attachment rates trending, and they're kind of where you guys expected them? Thanks. Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: Yeah, on the buy online pick up in store, that's an easy one. On average, it's been about 25%, it was actually more during holiday. On loyalty, we obviously had a lot more dollars since we had a lot more customers bounce-back in January, we did see a slight deterioration in the response rate. One thing I probably made a mistake on is when you double the size of your file, not everybody loves Kohl's equally, and as you add the later adopters to loyalty, they're not going to respond as quickly. So that's some learning, we'll do a better job of planning in 2016 because of that. Kayla R. Wesser - Piper Jaffray & Co (Broker): Thanks.

And the next question comes from the line of Michael Binetti of UBS. Please go ahead.

Hey, guys. Good morning. I just wanted to – Wes, a couple of questions for the CFO, off this year maybe. I want to make sure I understand the D&A with the step change higher, and CapEx, and then I know some of the investments have been in IT, which I would've thought would've had a faster amortization cycle to them. I think you guys talked about that. And I know you mentioned maybe some of the store closures have a D&A component. But maybe you could just help me think about the push and pull on the D&A going down next year a little bit closer? Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: Well, most of it's because $7 million comes out because of the store closures.

And the others aren't enough to override that I guess, huh? Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: Well, we spent – last year, we spent $934 million, what'd I say, $940 million for this year. So it's a little bit of a rise. And we've been spending a boatload of money on IT for a number of years, so we're starting to cycle through that. The average life of an IT project ranges from three years to five years, but I would say more and more we're using three years just because the innovation is so – the cycle is so short.

Okay. And then I understand the comments, thanks for the comments on looking at the leverage point for the future, Kevin. I wanted to make sure I understand the components of the SG&A guidance for 2016. And I know you just said you're planning credit up as an offset, but in the past, you said 2% SG&A growth, and this year, a touch below that. If I had to think about the buckets, you'll have healthcare and wages going up in the stores. Can you just help us understand the remainder of – where the remainder of the cost control to come in below that 2% target you had before? If it's between corporate overhead, ad spend and the credit you mentioned versus the store level costs? Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: Well, from my perspective, again, the store closures help them. We said it was $44 million or $45 million. So you can take a portion of that for the year depending on when we close the store in June. And that's embedded in the guidance. Store payroll is going to grow. We're seeing the wage pressure. We're not immune to it. Other people have reported, said it's a pressure. In this quarter, it's going to be a pressure. This year, it's more than a third of our overall SG&A, so that's going up. I think we can be more efficient, like I mentioned in ship-from-store and BOPUS. That will help mitigate that. We actually experienced healthcare deflation this year. We had a tremendous year in terms of that, knock on wood. We were lucky we didn't have a ton of large claims which can really swing it one way or the other. But we've made a lot of plan changes and wellness…

Just because it's critical – sorry, just because the fourth quarter is so important, and I know you guys were rethinking advertising as you went through fourth quarter last year, is advertising planned up in the fourth quarter this year? Kevin Mansell - Chairman, President & Chief Executive Officer: We haven't gotten that far to that quarter. Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: Yeah, we planned the fall season, but I mean there's not a Star Wars movie to my knowledge, so we won't have to spend money on that. Kevin Mansell - Chairman, President & Chief Executive Officer: I mean, honestly, I wouldn't think of – I think Wes just said we spent $1.11 billion or $1.12 billion in marketing this past year. I wouldn't think about – I wouldn't take away from this discussion, hey, they're going to dramatically lower the amount of marketing they spend. We're talking about on the edges. We're talking about reducing it by $10 million on a $1 billion base. The more important thing for us that we just touched on with a caller or two ago is we've got to make that $1 billion work harder through personalization. That's really the win and then the other things become savings.

Thanks a lot, guys.

Our last question comes from the line of Stephen Grambling of Goldman Sachs. Please go ahead. Stephen Grambling - Goldman Sachs & Co.: Hey. Good morning. Thanks for sneaking me in. Kevin Mansell - Chairman, President & Chief Executive Officer: No problem. Stephen Grambling - Goldman Sachs & Co.: As you think about your ongoing clearance and what seems to be something that's going on across the space, can you provide any color on how much of these margin pressures are driven by cyclical or seasonal issues versus something structural such as increasing price transparency particularly with the growth in mobile? Kevin Mansell - Chairman, President & Chief Executive Officer: This is all about liquidating. Wesley S. McDonald - CFO, Senior Executive VP & Head-Investor Relations: This is all about cold weather merchandise. Kevin Mansell - Chairman, President & Chief Executive Officer: Yeah. This is all about liquidating and getting out of our holiday cold weather inventories through the early part of the first quarter and repositioning our inventories at a lower level going forward. Stephen Grambling - Goldman Sachs & Co.: Fair enough. And then as a follow-up to I believe Matt's question earlier on store closings, how does the performance of the remaining base of stores look? Specifically, is there a wide range or is it fairly tight? Kevin Mansell - Chairman, President & Chief Executive Officer: I mean, it's always been relatively fairly tight. What happens is regionally each quarter, I hate to use the word weather, but the facts are weather can positively influence a quarter's results in a region and negatively influence another quarter's results. So the West Coast got better results because they had better weather. And the Midwest or Mid-Atlantic got lower results. But the spectrum across from a store comp perspective, I…