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Kohl's Corporation (NYSE:KSS)

Q1 2014 Earnings Conference Call

May 15, 2014, 08:30 AM ET

Executives

Wesley S. McDonald - CFO and Senior EVP

Kevin Mansell - Chairman, President and CEO

Analysts

Daniel Binder - Jefferies LLC

Robert Drbul - Barclays Capital

Oliver Chen - Citigroup Inc.

Lizabeth Dunn - Macquarie Research

Paul Trussell - Deutsche Bank AG

Michael Binetti - UBS Investment Bank

Matthew Boss - JP Morgan Chase & Co.

Paul Swinand - Morningstar, Inc.

Neely Tamminga - Piper Jaffray

Paul Lejuez - Wells Fargo Securities

Charles Grom - Sterne Agee & Leach Inc.

Mark Altschwager - Robert W. Baird & Co.

Lorraine Hutchinson - Bank of America Merrill Lynch

Stephen Grambling - Goldman Sachs Group Inc.

David Glick - Buckingham Research

Dana Lauren Telsey - Telsey Advisory Group

Patrick McKeever - MKM Partners LLC

Operator

Good morning. My name is Shirley, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kohl's First Quarter 2014 Earnings Release Conference. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Certain statements made on this call, including projected financial results, are forward-looking statements within the meanings 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 as well as maybe 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 replays of this recording will not be updated. So if you are listening after May 15, 2014, it is possible that the information discussed is no longer current.

I will now turn the call over to our host, Mr. Wes McDonald, Chief Financial Officer. Sir, you may begin.

Wesley S. McDonald

Thank you. With me today is Kevin Mansell, our Chairman, CEO and President. I'll walk through our actual results and Kevin will talk a little bit in more detail about some of our merchandising and marketing initiatives, and then we'll wrap it up with the close and take your questions.

Comp sales decreased 3.4% for the quarter. Our average unit retail increased 2.6% while units per transaction decreased 1.5% which leads to a 1.1% increase in average transaction value. Transactions per store decreased 4.5%. Total sales for the quarter were 4.1 billion, a decrease of 3.1% from the first quarter a year ago.

Our comps were lower than our plans but we continue to expect improvements in comps that we progress throughout the year. Kevin will talk more about our actual sales results in a moment.

Our gross margin rate for the quarter was 36.8% which was about 40 basis points higher than the first quarter of last year, and slightly higher than the rate assumed in our annual guidance. SG&A was 3 million higher than the first quarter of last year. Marketing costs were lower than last year as we shifted some spending to the second quarter. Our credit card business reported higher revenues.

Partially offsetting these improvements were higher remodel costs as our remodels are occurring earlier this year than they did last year and higher investments in our E-Comm fulfillment centers and information technology.

Depreciation expense was 216 million for the quarter, essentially flat to last year. We are decreasing our annual depreciation guidance from 950 million to 900 million. Most of the change is related to remodels which are lasting longer than the depreciable lives that we had originally given them for accounting purposes.

Our interest expense was 85 million for the quarter, up 2 million due to the $300 million of debt issued in September of 2013. Our income tax rate was 36% for the quarter. This is lower than expected as we had a favorable state audit tax settlement during the quarter. Our diluted earnings per share were $0.60 for the quarter, down $0.06 from the first quarter of last year and net income was 125 million.

During the quarter, we opened four new store locations and relocated one existing store. We permanently closed two stores. One store is being temporary closed and rebuilt and will reopen with three additional new stores this fall. We ended the quarter was 1,160 stores, gross square footage of 100,340,000 square feet and selling square footage of 83,715,000. Our plans are to remodel 33 stores this year. This is generally consistent with last year. Most of this year's remodels will be completed in the spring season.

Capital expenditures were 176 million for the first quarter of 2014, 41 million higher than the first quarter of 2013. Most of the increase is related to a call center that we purchased in Texas. Remodels were also higher as our remodels are occurring earlier this year than they did last year and IT spending was also a little higher.

We ended the quarter with 717 million of cash and cash equivalents, higher capital spending and the timing of tax and non-inventory payments resulted in negative free cash flow for the quarter. We ended the quarter with 4 billion of inventory, a 1% increase over last year. Kevin will talk more about inventory in a few minutes.

AP as a percent of inventory decreased from 36.7 of the quarter 2013 to 34.7 this year. Our first quarter weighted average diluted shares were 208 million. We repurchased 3 million shares of our stock during the quarter. On May 14, our Board declared a quarterly cash dividend of $0.39 per diluted share which is payable June 25 to shareholders of record at the close of business on June 11. We continue to expect earnings per diluted share of $4.05 to $4.45 for fiscal 2014 consistent with our previous guidance.

I'll now turn it over to Kevin who will provide additional insights in our results.

Kevin Mansell

Thanks, Wes. As Wes mentioned, our first quarter comps were down 3.4%. Though sales were below our expectations for the quarter, I am encouraged by the consistent improvement that we saw as the quarter progressed. Looking at our results by line of business, children's and footwear outperformed the company. In children's, infant and toddler sales were strong and in footwear, strength continued in our athletic shoe business.

Men's and women's apparel performed with the company. Notable performance in men's included active apparel and young men's. In women's, for the first time in many quarters juniors was the strongest category achieving a positive comp. Intimates also outperformed the company in women's.

Accessories and home underperformed the company. In accessories, the new beauty brands continue to contribute to strong sales and soft home was the best performing category in total home.

On a regional basis, the West was the strongest region. The Southeast and South Central regions also outperformed the store average. The Midwest was generally consistent with the store average and the Northeast and the mid-Atlantic regions were the most challenging.

From a mix perspective, we're pleased with the results that we're seeing in our national brands since renewing our emphasis on them last fall. For the third consecutive quarter, national brand penetration increased. The national brands reported a higher comp result in our private and exclusive brand.

Our renewed emphasis around national brands does not mean we are abandoning our exclusive brands. Our customer continues to recognize the value these brands provide and we expect to continue to innovate on the product side and deliver the incredible savings customers expect from us on these brands.

In April, we launched the first collection which combines the magic of Disney and the quality and value of our Jumping Beans brand. This was a tremendously successful initiative and will be rolling out new elements around more of the Disney portfolio throughout the rest of the year.

This June, we're launching Fit Bed as part of extending our active and wellness business. And finally, this fall we're on target to launch both the IZOD brand in men's and the Juicy Couture brand in women's. A partnership with Elie Tahari will be introduced as the next phase of a DesigNation strategy this fall as well.

On the inventory front, on a per store basis, excluding E-Commerce, inventory dollars were down 1% while units were down 4%. We continue to make investments in national brands increasing their inventories while reducing our private and exclusive brand inventory. We ended the quarter with seasonal inventories down to last year and well in line with our plan.

In closing, I want to take a moment and give you some insight into our thinking and strategy for the longer term. As you know, we build a new leadership team across the company over the last year and a half. Frankly that's been driven by the need to drive better results, particularly on the top line and evolve our business more fully and with much greater speed. The only remaining leadership role to be filled is our Chief Merchandising Officer position which we will fill externally.

We built and grew a very successful business on brands, value and convenience; elements that remain core to our heritage and are important to today's families. Change in our industry is happening faster than ever. Competition has intensified. Consumer behavior is shifting and expectations surrounding the speed and choice continue to be raised. We need to evolve as a company and we're ceasing this opportunity to refocus, reenergize and pave our path forward with a new and clear purpose. We expect greatness and we have a plan to get there.

Over the last six months or so, the new leadership team has created the plan we are calling, Our Greatness Agenda. Our Greatness Agenda is a multiyear vision built on five pillars; ideas that are fundamental to the way we do business, their amazing product, incredible savings, easy experience, personalized connections and winning themes.

To explain each a bit more; first, amazing product. We've always had amazing product but our customers' wants and needs continue to evolve. As a result we've got a renewed focus on providing the right merchandise mix, being more locally relevant and tailoring products to every customer across every channel. Our new beauty offerings are just one great example of the amazing new product that customers can find in many of our stores and online. By yearend, almost half of our stores will feature a new and exciting beauty department.

Second, incredible savings, helping every customer get more from every dollar. We provide ways to save that families won't find anywhere else like Kohl's Cash, our Kohl's Charge Savings and most recently, our loyalty program pilot. We continue to see very positive results in our loyalty test in California, Texas and Pittsburgh but continue to improve and evolve the program to make it even more compelling to our customer.

We're now more convinced than ever that the vision and loyalty that has come out of the testing will be a key element of driving our top line in the future. We'll be introducing that new vision to the Milwaukee market and re-launching it in the Seattle market later this quarter with a plan of rolling it chain-wide by the end of the third quarter.

Third, easy experience; consumers demand a seamless, easy, inspiring experience whenever they shop. We continue to make significant investments to improve the shopping experience for our customers wherever or however they choose to engage with us. Between last year and this year, we'll have invested almost $600 million in capital spending on technology projects that make that experience better than ever.

Last year, we focused on moving E-Commerce infrastructure to new providers to give us the capability to grow our digital sales and platform. This year, we're building on this with significant investments as well around mobile and in-store technology.

Fourth, personalized connections; it's all about building lasting relationships with our customers, both current and prospective. Those relationships are based on the customer's experience in the store and online as well as how they perceive us contributing in the communities in which they live every day. We're focused on localizing and tailoring what we sell and how we communicate our amazing product so they see us as their store.

We know that our product and our offers have to be personally relevant to each and every customer. At the same time, personalized connections is about contributing to causes like children's health and education or the environment, so they see us as sensitive to the issues that are important to them.

And the last pillar but certainly not the least is winning teams. We already have a winning team of 140,000 associates nationwide. We're as committed as ever to building teams of engaged, talented, empowered and result-oriented associates and to attracting developing and retaining the very best talent.

As a leadership team, we've had the opportunity to share our Greatness Agenda with every one of our associates as well as begin conversations with our key business partners, including merchandise suppliers. Across the board, the response has been incredibly positive. I'm inspired by the energy and the commitment we are seeing throughout the organization in the last few months. Teams have been formed to support the very specific plans in place around these five pillars and new ideas continue to surface every day.

We've had some early exciting wins. One of those has been the response to our Power of Yes campaign which launched in April across a variety of media. That campaign includes 30 second television commercials which celebrate yes moments that most families can relate to in their own lives. The campaign is authentic and it's grounded in our heritage that allows us to refresh who we are and connect with the customer in a new and different way.

On the brand side, our new partnership with Disney and our latest design partnership with Peter Som have been incredibly successful. I'm confident this is just the beginning. I recognize that we need to accelerate the impact of these efforts on our results quickly, most importantly on the sales line. We are evolving rapidly and are using the wins we see to build momentum.

We plan to share significantly more depth on our Greatness Agenda as the year progresses and we have planned an Analyst Day here in Milwaukee at the end of October. At that time, I would expect you to be able to hear in great detail the moves being made to support our pillars of the Greatness Agenda, meet our new team in person and get a view of our three-year financial plan.

Finally, one piece of great news that we included in our release is about the extension of our credit card partnership agreement with Capital One. As you know, the Kohl's credit card has been an important element of our engagement with our most loyal customers. We partnered with Capital One three years ago in a seven-year agreement to help manage this very important relationship. We chose them at the time because we felt they exemplified the type of partnership we value; one where both partners are focused on the same important themes; driving profitable sales and creating lasting strong relationships with our cardholders.

Our experience since then has reinforced we made a great choice. As a result, we're announcing an extension of the original agreement for an additional five years along substantially the same terms. We have both identified a myriad of opportunities for the long term to build this business to an even greater height. The agreement provides the certainty to allow us to do that with a long-term view, and we look forward to working towards that goal with their team.

We'll be happy to take your questions at this time.

Question-and-Answer Session

Operator

Welcome to the Kohl's first quarter 2014 earnings call. Your first question comes from Dan Binder. Your line is open.

Daniel Binder - Jefferies LLC

Hi. It's Dan Binder. Wes, I was hoping maybe you can give us a little bit of – more color on two things. One, the performance to the quarter and then two, just the puts and takes on the full year guidance being maintained? It sounds like you had this relative to your expectations for Q1, but appreciation is coming down. If there's any other color you can add to it?

Wesley S. McDonald

Well, other than just saying that it improved each month throughout the quarter, I don't want to really get into quantifying – that's kind of why we went to quarterly guidance, but it definitely did improve throughout. And in terms of the guidance, obviously the depreciation number was included in our thinking of maintaining the guidance. We have a lot of sales to go and we think it's going to improve for the reasons Kev talked about in the call. So I can't tell you if we're going to hit the flat to 2 for sales, but I mean we think we have a pretty good shot at it and we – the other lines of the P&L I think we've proven to manage pretty well.

Daniel Binder - Jefferies LLC

Great. Thanks.

Operator

Welcome to the Kohl's first quarter 2014 earnings call. Your next question comes from the line of Bob Drbul. Your line is open.

Robert Drbul - Barclays Capital

Hi. Good morning.

Kevin Mansell

Good morning.

Robert Drbul - Barclays Capital

When you guys look at I guess the traffic in the quarter and the down 4.5%, what do you think can turn that from your perspective and when do you think we can start to see some traction on the comps? And how much of it do you think was really weather in the quarter?

Kevin Mansell

This is Kevin, Bob. I think it's hard for us to quantify the various drivers of the performance. As we progress through the quarter, each month got better particularly as we ended the quarter. Seasonal categories definitely underperformed the company substantially. On the positive side there we ended the quarter with inventories in seasonal categories quite a bit less than last year, so we're really actually in a pretty good shape on that. I mean fundamentally, Bob, one of the reasons we spent a more extended time to provide some clarity into our thinking going forward is to make sure that you heard what our focus is and as you heard, it's built on these five pillars and those five pillars are really what is going to have to drive the change. So product is a big part of that, new savings initiatives in a big part of that and then new concepts like the beauty concept, as an example, is another big part of that.

Robert Drbul - Barclays Capital

Got it. And Kevin, I just have a question on the fragrance piece of it. When I was in the stores last week, there was a lot of – in some of the fragrance areas like Nicki Minaj versus Jennifer Lopez type of fragrance in there, like which one of those are driving the business and sort of how are they performing versus the rest of the category?

Kevin Mansell

Is that the Bob's stumps Kevin question which you definitely have me on? Fragrance is, as you can imagine, not performing on a year-over-year basis for the same extent as overall beauty, because the overall beauty has a lot more new initiatives involved in it. But the individual performance, Bob, you got me.

Robert Drbul - Barclays Capital

All right, I'll follow up with Wes. I think he'll figure it out for me.

Kevin Mansell

Sure.

Robert Drbul - Barclays Capital

Thank you.

Operator

Our next question comes from the line of Oliver Chen. Your line is open.

Oliver Chen - Citigroup Inc.

Hi. Thank you. On the opportunity to broaden the appeal and the beauty, the brands in the loyalty side, where are the catalysts for the loyalty program in terms of where you see the next milestones there? And then just on the brand side, I was just curious about if we dissect that further, which classifications may have the most incremental opportunity for you as you engage in more improved product? Thank you.

Wesley S. McDonald

I think on the loyalty side, we continue to see comp outperformance versus the control group from approximately 150 basis points to 250 basis points. That's been relatively consistent. Texas has now been rolled out for a whole year now and they got about 150 basis points lift versus the control group. So we feel good about that. We're going to roll out the two additional markets like Kevin mentioned in the second quarter, the balance of the chain in the third. One of things you'll start to see more of in the store as we roll it out is additional pieces to the loyalty program broader than just savings and we'll let those play out as we roll that out. On the beauty side of things, post holiday we've seen increases in the beauty business of 35% to 45% depending on the type of presentation and the sales volume store and our total store lift in some of the ones with more extensive renovation has gone from about 1% to almost 2% now, so that's very encouraging. One of the things we're thinking about is trying to accelerate next year as many of the higher volume stores that we can with the more extensive investment. We had planned a lot of those for 2016. We're trying to see how many of those we can move up into next year as we feel like those for sure will be successful. We're still evaluating on the beauty side a brand new option that we rolled out which was sort of in between our acrylic, low investment and our higher investment. We're opening those stores this year. They have proven to be successful. It's possible we could accelerate beauty on a more quicker timetable.

Kevin Mansell

On the brand side, Oliver, I think as time wears on, we're more and more thinking about brands that relate to lifestyles that are important to our customers. So as an example, for instance, active and wellness is an area that we've identified that we have strengthen already on a share basis in our active apparel and active footwear categories, but there's opportunities for us to extend that even further. So active and wellness is an opportunity category for us and that really impacts men's apparel, women's apparel, children's apparel, footwear and home to a great extent. Home is another category. I think that we have identified as a category that we could strengthen our national brand portfolio particularly in classifications that are core to us, like the housewares business. And then I think the third thing is more what I would call unique ideas. So they might not be the obvious ones. The best example of that I would give you is the recent Disney partnership. So we have a phenomenally successful children's business but finding that combination of a great brand with a great value really hit a homerun in there. And then finally online. I think the omni-channel team is working hard at extending the categories that we typically sell in our store outside of those and there has been a great deal of success in doing that and presenting new brands as a result of that.

Oliver Chen - Citigroup Inc

Great, thank you. Best of luck.

Operator

Our next question comes from the line of Liz Dunn from Macquarie. Your line is open.

Lizabeth Dunn - Macquarie Research

Hi. Thanks and thanks for all the detail on the new initiatives. I guess just a couple of questions. In terms of the lift you're seeing in Texas, is that versus all stores or is that versus some other hot market control group?

Wesley S. McDonald

It's a control group.

Lizabeth Dunn - Macquarie Research

Okay. I guess in terms of the shift in marketing spending from the first quarter to the second quarter, is there any way you could quantify that? Sorry, if I missed it.

Wesley S. McDonald

No, it's a few million dollars. I mean it's really a shift to support the loyalty rollout in the two markets we mentioned.

Lizabeth Dunn - Macquarie Research

Okay. And then just trying to understand the puts and takes on the depreciation versus the modest miss in earnings. I mean, the miss in the first quarter was fairly modest but I guess 50 million in depreciation looks more like, I don't know, a $0.15 shift. So is it that you've kind of adjusted your go-forward expectations or is it just that you're still looking at it in the range and you're not necessarily saying that you've taken $0.15 out of the operating performance to offset this $0.15 depreciation?

Wesley S. McDonald

No, I'm just saying we still think we can make – your calculation is pretty close. It's really not a comment on anything other than it's a pretty wide range we gave. Our biggest issue has been sales. We believe sales are going to improve. First quarter sales, I don't think we – you're starting to hear reports. I don't think anybody is going to knock the cover off the ball. So we just wanted to make sure we can maintain our guidance and as sales improve, if we can get closer to the high end of the range and that would be viewed more as incremental to the guidance if we start running one comp which would be better than what we're running today, that will allow us to finish somewhere in the middle.

Lizabeth Dunn - Macquarie Research

Okay, great. Thank you.

Operator

Our next question comes from the line of Paul Trussell from Deutsche Bank. Your line is open.

Paul Trussell - Deutsche Bank AG

Hi. Good morning. Just circling back to the breakdown of the comp, I believe you said AUR was up about 2.5% or 2.6% or so. If you can just describe what is driving that lift? Is that more the national brands in the mix or just what's providing that gain? Thank you.

Wesley S. McDonald

I think it's a combination. It's less clearance that's contributing to a part of it. National brand mix is contributing a little bit to it, but it's actually been more on the private and exclusive side. I think part of that is what we're selling right now since seasonal businesses are pretty tough. Those tend to be like tees and tanks are a little lower priced than some of the wovens and things we're selling in the women's and junior businesses, so that's driving the comp or the AUR up a little higher than it would be normally if you were – seasonal weather.

Paul Trussell - Deutsche Bank AG

And so, Wes, could you just remind us what is the expectation for AUR versus traffic for the full year?

Wesley S. McDonald

I mean the goal is to get traffic to be at least flat and we think we'll have a modest gain in terms of ticket. It's going to be driven by AUR and UPT if I had to tell you. My estimate now would be we probably have a slightly higher AUR and a slightly lower unit, but still kind of average the ticket to where we were for the quarter, up about 1%. But we need to get transactions per store back to flat.

Paul Trussell - Deutsche Bank AG

That's helpful. Thank you. And my last question is just on the E-Commerce initiatives. I apologize if I missed it. What was the E-Commerce growth in 1Q? And then if you can just update us on the test for order online, pick up in store, as well as your ship from store initiatives?

Wesley S. McDonald

On the ship from store, we're still in a little over 200 stores. We'll be rolling that out to over 800 stores for the fall and that will happen sort of in the third quarter timeframe. The buy online, pick up in store test will be also in the third quarter in a couple of markets; Chicago, Milwaukee and San Diego that will allow us to advertise that a little bit since we can do versioning. From an E-Comm perspective, we were below our plan but still up double digits. Obviously, E-Comm was also affected by some of the difficulty from a weather perspective in the quarter. And it's getting difficult – once we get more stores on ship from store and do buy online, pick up store, it's going to become very blurred, so it's going to be all just kind of in the total sales number.

Paul Trussell - Deutsche Bank AG

Understood. Thank you.

Operator

Our next question comes from the line of Michael Binetti from UBS. Your line is open.

Michael Binetti - UBS Investment Bank

Hi, guys. Good morning.

Kevin Mansell

Good morning.

Michael Binetti - UBS Investment Bank

I'm not sure if I missed it, but could you tell us – did you mention the growth of E-Commerce sales in the quarter?

Wesley S. McDonald

That was the question that was just asked and we said it was below our plan but still up double digits and it's getting more difficult because the ship from store and buy online, pick up from store…

Michael Binetti - UBS Investment Bank

Okay.

Wesley S. McDonald

And many of our competitors sort of say it's blurred and we agree with them.

Michael Binetti - UBS Investment Bank

Okay, sorry if I missed that. Does the Capital One renewal include a change in the economics or is that just a change in the duration of the contract right now?

Kevin Mansell

No, we're just extending the contract and basically the new extended agreement or substantially the same terms as the old agreement.

Michael Binetti - UBS Investment Bank

Okay. And then I know you've answered questions on AUR and traffic, but I was a little – I was surprised to see the mid-single digit AUR increase again in the quarter. Was it…?

Wesley S. McDonald

Actually low-single digit was 2.6%.

Michael Binetti - UBS Investment Bank

I'm sorry, low-single digit, yes, and I know that was similar to last quarter. I know you said there was some reduced clearance in there, Wes, but do you think at this point as you look at pricing, you need to make some adjustments there to help stabilize the traffic number or are there any change in how you were thinking about this 90 days ago as far as where you want pricing to be for the year to help traffic get to that zero that you were talking about?

Wesley S. McDonald

Like is said, clearance was a part of it and then as you look at the brands, it came more from private and exclusive and if you looked at the line of business, it was primarily in women's. Women's consist of juniors and misses. Juniors ran a positive comp for like the first time in three years at least, so I don't think it hurt their business. I think it's really just a mix within women's. We weren't selling tees and tanks which have lower AURs, we were selling more wovens and long bottoms and those have higher AURs. So I think as we move through the spring, the AUR should come down a little bit. It should be a little higher than last year just because of less clearance to be honest, but I don't think it's going to be any higher than what it was this quarter.

Michael Binetti - UBS Investment Bank

Okay, thanks for the detail. And then if I could ask just one last one is just on the gross margins as we think about our models here, it seems like after the first quarter if I just extend that out, you might be on track toward the higher end of that 10 to 30 guidance for the year…

Wesley S. McDonald

Yes, it all depends on if spring ever comes and we're able to sell through the seasonal inventories that we do have. We are lower than last year but we have to sell them. So if we get normal sell-through in Q2, I would suspect us to be in pretty good shape. It's very hard to anticipate in the first quarter what your full year margin is going to be. A lot of that is going to depend on how competitive the fourth quarter is.

Michael Binetti - UBS Investment Bank

Okay. Thanks a lot, guys.

Operator

Our next question comes from the line of Matthew Boss from JP Morgan. Your line is open.

Matthew Boss - JP Morgan Chase & Co.

Hi, guys. Good morning.

Kevin Mansell

Hi, Matt.

Matthew Boss - JP Morgan Chase & Co.

On the expense side, as you ramp distribution and IT to drive online and clearly you have a number of initiatives in place here, how should we think about investments and the SG&A leverage point going forward?

Kevin Mansell

Well, I think our goal remains to leverage at a 2% comp. We gave guidance for the year of 1.5% to 2.5%. We did better than that in the first quarter. I'm trying to target towards the low end but we are going to continue to drive IT and E-Commerce investments. You have to do that, but there's a lot of things going the other way too. Our stores are very, very productive absent technology investments. I don't see us being able to squeeze a ton of payroll out of that. We have to be more efficient from a marketing perspective not necessarily spend less money but drive more sales. But we'll continue to do what we can to try to manage our expenses, but we still think over the long term we're going to need a 2% comp to leverage SG&A.

Matthew Boss - JP Morgan Chase & Co.

Great. And then on the gross margin side, given what you have seen with traffic and I know you're expecting some improvement in the back half, but what do you think on pricing? Do you think you guys are appropriately priced with your private label, with national brands or do you think you need to invest in price a little bit more going forward?

Kevin Mansell

No. I mean generally as we've looked at it external data, our price points relative to competition are in pretty good shape. I mean primarily what's driving the slight increase in AUR are mix issues…

Wesley S. McDonald

Specifically in women's is the biggest driver.

Kevin Mansell

Exactly. So it's really not – as we go through it, Matt, when we look at each individual category by itself and look at the average in our retails that are being produced, they look basically really similar to last year. But the mix of what we're selling is driving that. And as Wes mentioned, clearance, particularly in the first quarter, had an effect on that as well because we had much, much lower levels in our clearance inventory.

Matthew Boss - JP Morgan Chase & Co.

Okay. Good luck, guys.

Wesley S. McDonald

Thank you.

Operator

Our next question comes from the line of Paul Swinand from Morningstar, Incorporated. Your line is open.

Paul Swinand - Morningstar, Inc.

Thanks for taking the questions. I just wanted to drill down on the national brands a little more. I guess a two-part question. When do you think that, now that you are in this reinstitution of the national brands is that a traffic driver and do you think if that builds, you'll start to have an impact on traffic?

Kevin Mansell

Yes. I mean fundamentally I think what we've seen in our results in the last couple of years and also in the research we've done with customers is that we've lost some traction with our core customers as the place to get great brands as they recognize. And so it's hard to see those changes on a month or quarter basis, but we're pretty certain based on our own results and the research that over time as we build that, we'll kind of get back into the sweet spot that we need to be to be recognized as a place to go for great brands. And fundamentally that's what the traffic driving is all about.

Paul Swinand - Morningstar, Inc.

But that's more like an opinion of the store rather than a promoted or featured item?

Kevin Mansell

Well, I mean it's a combination of both to be honest with you. The customers have been pretty clear that they want more national brands and secondarily, the results as we've built them have kind of reinforced that, right? The brands are outperforming the store…

Wesley S. McDonald

Three quarters is a row.

Kevin Mansell

…substantially and consistently. I mean is it a perception, for sure. That's the research part but the results part are pretty clear. That's statistical, both poor results prior to our change and better results after our change.

Paul Swinand - Morningstar, Inc.

Will that obviously then drive down your clearance if people tend to buy national brands with less discount or just more frequently?

Kevin Mansell

Well, I mean I think the advantage that probably comes with this strategy but it's not – the driver is that that business has a tendency to be more flow. There is certainly a lot more strength in basic categories as a result of that. So yes, there's an opportunity I think to improve the mix of clearance versus non-clearance. I mean as you know, the national brand on a purely merchandised margin rate basis are always going to be a little bit lower than our proprietary brand, but they come with substantive less risk. And at the end of the day if they're driving more traffic, it doesn't really matter anyway. So, I feel like we're hitting our stride on this and we definitely are responding to what the customer wants.

Paul Swinand - Morningstar, Inc.

Great. Thank you very much and best of luck.

Kevin Mansell

Thanks.

Operator

Our next question comes from Neely Tamminga from Piper Jaffray. Your line is open.

Neely Tamminga - Piper Jaffray

Great. Good morning. Kevin, a strategic question for you and I've got some housekeeping as well. So in listening to you talk about the Greatness Agenda, it seems to me that the third and fourth pillars around unique experience and personalized connections are really kind of wrapped up maybe in some of your mobile strategy as well. So could you talk a little bit about what you've been seeing on some of your early initiatives around integrating Kohl's Cash on the mobile app? Are you seeing people engaged more and use that savings wallet to drive conversion through your E-Commerce or digital channels? And then related to that, Wes, on the transaction per store being down 4.5%, do you have a sense as to what the conversion versus traffic dynamic is there?

Kevin Mansell

It's Kevin on the mobile question. I think it will be hard for us to point at some change in our trend of customers redeeming or how they redeem due to strategies that we're implementing around mobile. First of all, a lot of the mobile strategies are really more back half loaded and not front half loaded. Kohl's Cash specifically has always been a very high usage online and particularly as you can imagine as you get near the end of the redemption period and in an event there's substantial utilization. I don't know that I could tell you, Neely, that it has risen. It's something we can definitely have Wes take a look at and probably give you some color on later.

Wesley S. McDonald

Yes. You'll see a lot of changes to both our smartphone app and our tablet – more importantly our tablet app over the course of the year. If you guys recall when we did our re-platform last year, we basically just replicated what we had on the previous platform to make it simpler and reduce the risk of having something go wrong. This year was always planned to add more functionality to tablet and mobile tablet, much more important is that's where the traffic is really going. There is a lot of browsing on the phone but not as much transactions. So we're spending most of our time on the tablet app but you'll see changes to the mobile one as well.

Neely Tamminga - Piper Jaffray

And on the traffic versus conversion, Wes?

Wesley S. McDonald

I'm sorry, what was the question about?

Neely Tamminga - Piper Jaffray

So your transactions per store were down 4.5, but what was the conversion versus traffic on there?

Wesley S. McDonald

Transactions per store and traffic for us are one and the same. We have traffic counters in about 100 stores but it hasn't been a meaningful change year-over-year in terms of what people are converting at. So, we look at transactions per store.

Neely Tamminga - Piper Jaffray

And then, Kevin, if I may, one more. On the timing of the chief merchandising position, it sounds like you obviously plan on having that person installed by the Analyst Day. But where are you right now in the process and what does the caliber of your candidates look like at this point? Thanks.

Kevin Mansell

Obviously one of the reasons that we set the Analyst Day in the fall, there were really two drivers. One, we were pretty confident that we have a full team in place. And two, as I sort of described in the call, we have a pretty strong outline of a path forward. And by the time we get to the early fall, we'll be in a position to talk to you in great detail. We're shooting high on leadership and merchandising. That's what we do, right, as our product is a huge driver of our success. And much as we did when we filled and created the Chief Customer Officer role and we're able to recruit Michelle Gass in for that role, we want to make sure we shoot high and we want to make sure that we get a capable executive who is able to make an impact on the business first, but also that they're an executive who can grow in the future as well. So improving the overall team is a pretty big factor as well, Neely.

Neely Tamminga - Piper Jaffray

Thank you.

Operator

Our next question comes from the line of Paul Lejuez from Wells Fargo. Your line is open.

Paul Lejuez - Wells Fargo Securities

Hi, guys. Thanks.

Kevin Mansell

Hi, Paul.

Paul Lejuez - Wells Fargo Securities

You had some pressure with E-Comm in the fourth quarter. Just wondering how the profitability of that channel looked in the first quarter and what actions have you taken that will make sure that you don't run into some of those same issues in 4Q again this year?

Wesley S. McDonald

Well, we made money not as much as money as I would have liked to make. Some of the actions that we're taking, our guys in the EFC are really treating every day as a peak day and we're trying to simulate the pace of what we're going to see in the fourth quarter. I think our average was 1.3 days from orders shipped, which is pretty good, much better than we did last year and sort of the pace we have to maintain to be successful in peak. Some of the things we've done from a planning perspective, we went from 200 in some stores to 800 from ship from store. That should increase our throughput quite a bit. We've increased the number of SKUs that we use from a bulk position in our brick and mortar DCs since their peak is a little earlier than the E-Comm peak we're able to use that labor force in that space to do that and we've been successful in doing that the last few years. And then I guess finally the third is really to engage a third party logistics company to evaluate our operations and we made some changes because of that as well as we're using a third party logistics to help at the peak season with some of the additional bulk products. I think we have a pretty good plan. We also made some management changes in some of the EFCs which we think strengthen the team. And one of the DCs performed very well last year. We just have to get all four of them to perform as well as that DC last year and we should be in good shape.

Paul Lejuez - Wells Fargo Securities

Got you. And then just one more. On the five pillars, just wondering what does that imply from a CapEx perspective? Do you need any additional infrastructure to receive those five pillars as you think about the next couple of years? And also just wondering which of the five do you think is the most low-hanging fruit? Thanks.

Kevin Mansell

First of all for this year the answer is no. We're not making changes in our capital spend. I think what it probably implies is that you'll continue to see a significant part of our over-capital moving against technology because many of the pillars are fundamentally focused around improving the experience and making it more seamless. There is certainly nothing as we think through the next few years that we're not able to do from a liquidity or cash perspective, but it really doesn't appear to us to any of the pillar strategy is going to dramatically change what our CapEx spend thoughts were since the beginning of the year.

Wesley S. McDonald

We'll give more guidance from a three-year plan in the future, but if you modeled somewhere between 750 or 800 a year on average that's probably – we're a little lower now but as we ramp up beauty and ramp up remodels perhaps in the out years, that 750 to 775 is probably a good average.

Paul Lejuez - Wells Fargo Securities

Got you. And any low-hanging fruit on the five pillars in your view?

Kevin Mansell

Well, I think each one of them is individually unique. The two that obviously we're looking at in the near term; one is around incredible savings in particular the loyalty program. I think that's clearly an obvious one. Price, second, and I want to say it is second in priority but is another obvious one, our product changes. So as Wes described the acceleration in the beauty rollout and the launch of what we think are going to be two really powerful brands, IZOD and Juicy Couture in the fall, I think are going to be a driver for sure. When we look at it a little bit longer term, some more third, fourth quarter building into next year, I think it's an awful lot about personalized connections and making that seamless experience better and we've got opportunity on both of those fronts. But it's harder for us to pinpoint that as let's say a driver of third quarter sales. I think that's more of an ongoing driver.

Paul Lejuez - Wells Fargo Securities

Got you. Thanks and good luck, guys.

Kevin Mansell

Thanks.

Operator

Our next question comes from the line of Charles Grom from Sterne Agee. Your line is open.

Charles Grom - Sterne Agee & Leach Inc.

Good morning, Kevin. Good morning, Wes.

Kevin Mansell

Hi, Chuck.

Charles Grom - Sterne Agee & Leach Inc.

The improvement in gross was impressive despite the comp shortfall. Just wondering if you could flush out the drivers on that front? And then on inventory, if you could speak to the units across the three categories; national, exclusive and private brands, what did they look like relative to last year?

Wesley S. McDonald

Well, from an inventory perspective I think we actually get this weather forecast in advance and we bought seasonal down about 10% coming into the year, so I think that was a pretty smart move. We thought we could chase if it turned out to be wrong and it turned out to be right. So I think we're in pretty good shape. From a unit perspective, we're up a little bit in national brands kind of like low-single digits and down mid-single digits in private and exclusive.

Kevin Mansell

On the margin side, I think we had pretty good consistent performance across the store. I mean it was planned to improve and it did improve. It probably actually improved a little bit more than we expected it to and I think a little bit more than, if I'm right, Wes, a little bit more than the guidance we gave for the year.

Wesley S. McDonald

Yes. All the lines of business expect for kid's beat LY from a margin perspective.

Charles Grom - Sterne Agee & Leach Inc.

Okay, fair enough. And then on the comp, down 3 and 3.4, just wondering if you guys have looked at how big a delta existed between some of the markets. You called out the West and parts of the South being strong and parts of the Northeast and mid-Atlantic being weak. I'm just wondering how big a comp gap there was between the good and the bad markets?

Kevin Mansell

It was relatively substantial. I think the way we try to deal with this issue of lines of business or regional performance, Chuck, is if a region or a business is within 100 or 150 basis points to the average, we're not even going to call it out as a strength or a weakness. It needs to be more substantial than that for us to call it out and we definitely wanted to call out the West as clearly outperforming. We definitely wanted to call out the Northeast and mid-Atlantic as clearly underperforming. So it's relatively substantial.

Charles Grom - Sterne Agee & Leach Inc.

And is it safe to say that some of those underperforming markets in the quarter have improved in April and I guess sometime here in the first two weeks of May?

Kevin Mansell

Yes, I think – Wes has shaken his head in the background. I think the performance in April started to kind of come together more is the way I would say it. And so the Northeast and the mid-Atlantic which were the most underperforming early in the quarter began to look a lot more like the company in the end of the quarter. Is that right, Wes?

Wesley S. McDonald

Yes, I mean it's still worse but it improved certainly from where they were in the beginning of the quarter.

Charles Grom - Sterne Agee & Leach Inc.

Okay. And then just bigger picture, Kevin, I was wondering what's the expectation for future national brands? How the conversation is going with potential vendors? And is it your expectation that beyond IZOD and Juicy that we'll have some new brands in the store this time next year or into the summer of next year?

Kevin Mansell

Yes. I mean the short answer is yes. It's a high priority. When we talked about the pillars, the first pillar we talked about is product and within product it's an awful lot about the brands we sell. So it's probably our number one priority in terms of creating new traffic driving ideas and I'm really optimistic that we'll have some new things to talk about before the end of this year that would impact next year's business.

Charles Grom - Sterne Agee & Leach Inc.

Okay, cool. Thanks a lot.

Operator

Our next question comes from the line of Mark Altschwager from Robert Baird. Your line is open.

Mark Altschwager - Robert W. Baird & Co.

Great. Good morning and thanks for taking the question. There are various comp drivers in the second half with the loyalty, beauty, marketing and national brands. I'm just curious, now that you have more test data, can you talk more about the order of magnitude from each of these initiatives?

Kevin Mansell

Well, I think the biggest short term is national brands. They outperformed the last three quarters. We would expect that. We certainly would think that would ramp up in the third quarter with the launch of IZOD. Secondly, I'd probably say beauty. It's going to be in 512 stores before holiday. Last is loyalty just because it's not in as many stores as beauty and we'll roll it out in October probably, but you only have a quarter worth of business. But we're up to 8 million loyalty members now in the 300 stores we have, so it's definitely gaining some traction and we've seen some pretty consistent list versus the control group. But we're not going to get 8 million people to sign up in the fourth quarter, it's going to take time.

Mark Altschwager - Robert W. Baird & Co.

Okay. And then any sense for how much these initiatives are impacting new customer acquisition versus better traffic from your core customer base, and any goals on that front as each of these things roll out?

Kevin Mansell

Well, we want to do both, that's for sure, but I do – the early reads are that we're making some headway with customers who are new to us are at the very least not highly loyal, meaning they are non-Kohl's charge customers. So our sense is that what our hope was which is to focus on customer acquisition and be a little more relevant to more customers, these specific initiatives are actually starting to drive some of that behavior.

Mark Altschwager - Robert W. Baird & Co.

Great. Thank you.

Kevin Mansell

Yes.

Operator

Our next question comes from the line of Lorraine Hutchinson from Bank of America. Your line is open.

Lorraine Hutchinson - Bank of America Merrill Lynch

Thank you. Good morning. Can you give a little more detail around the strength in juniors this quarter? Was that driven by particular product categories, by national brands, sort of how you're looking at that business for the rest of the year?

Kevin Mansell

It was pretty broad. I mean if there was one sort of underperforming classification in juniors, it was the common denominator to the rest of the store and that was denim and denim underperformed, but I think that I suspect that Kohl's is not unique in that at least in listening to sales results of others, I think denim has been an underperforming category but other than that I mean there is really great strength across the juniors world. We've had early initiatives around color, the Wink of Pink promotion. We had some initiatives mid-quarter as we moved into Easter around dresses, but there's pretty broad strength across the whole area. If there's one thing we can point to is a business that made a lot of changes in terms of how they manage the flow, the inventory level and the content. That is a business that was focused on and then they got some great results. And as Wes said, I don't know exactly how long it's been since we had a positive comp in juniors but I think he's probably right, it's been several years.

Lorraine Hutchinson - Bank of America Merrill Lynch

Thank you.

Operator

Our next question comes from the line of Stephen Grambling from Goldman Sachs. Your line is open.

Stephen Grambling - Goldman Sachs Group Inc.

Hi. Good morning. It's Stephen and thanks for taking the questions. I guess first following up on personalization and the customer connections online. As you look beyond the kind of ship from store and click and collect, can you talk about some of the capabilities you currently have to tailor the online experience? And maybe what initiatives you have planned to improve these digital connections?

Kevin Mansell

Sure. I mean things that we're working on obviously loyalty is a big part of this because basically all of our loyalty engagement is going to be online. And so whether we're communicating to them and through them, as Wes described, on the tablet device or we're communicating to them and through them on a desktop device, a lot of that engagement is going to be very personal because the loyalty customer is a customer we're going to learn a lot more about and therefore we're going to be able to appropriately personalize the offers we might make to them. Other than that there are things going on in terms of reaching customers when they come into the store. We're planning to expand that quite a bit as we move into the fall and holiday season. I'm trying to think – Wes, anything else you want to call out?

Wesley S. McDonald

We can do the geocoding when they're in the store. We can shoot them an offer if they come in from your buy online, pick up in store. If they come into the store we know they are there and they opt into the Wi-Fi, we can shoot them an email or an offer via their smartphones. So we're really just starting on this. We've been working with a consultant to try to help us sort of jumpstart this and have started to do some segmenting of emails and retargeting of customers based on their browsing behavior online. So, I'd say we're in our infancy on this and certainly going to see more of this throughout this year and into next.

Stephen Grambling - Goldman Sachs Group Inc.

And then one quick clarification on just E-Commerce versus in store. Can you talk about the differences you see in the mix of national brands online versus in-store versus the exclusive and private label?

Kevin Mansell

Well, I think national brands have always penetrated a little higher.

Wesley S. McDonald

Yes, because home is bigger online. That's going to drive a bigger national brand penetration. So I'd say it's a little bit higher nationally just because home is about 30% of the business online versus less than 20% overall.

Kevin Mansell

If you target them at the acceleration of the penetration online versus brick and mortar, I don't know that we have that number in front of us but it's definitely something we can give you some color on later.

Stephen Grambling - Goldman Sachs Group Inc.

Great. I'll follow up. Thanks so much.

Operator

Our next question comes from the line of David Glick from Buckingham Research Group. Your line is open.

David Glick - Buckingham Research

Thank you. Good morning. Kevin, just following up on the CMO search, it sounds like – listening to your strategic objectives, it sounds like you're trying to evolve the culture of the organization to move faster and take more calculated fashion risks, and I guess are you seeing that come to fruition in juniors and it sounds like you're trying obviously to spread it to the rest of the organization? But with that as a backdrop, what kind of specific background and skill set are you looking for in a prospective Chief Merchandising Officer? Is it more specialty retail, department store? Obviously, you said you're shooting high. You're looking for someone who can continue to grow in the organization from a leadership perspective, but how are you thinking about that position and the impact on your strategic objectives specifically in terms of taking more calculated fashion risks?

Kevin Mansell

Well just real broadly without getting into the detail, I mean we would be looking for an executive who has exhibited speed to act, so decisiveness and speed are really critical factors. Second, obviously it goes without saying we want someone who has been highly successful and has demonstrated an ability to get results over a period of time. Third, we think we have a great leader in Michelle on the customer engagement side and it would be great to balance that with more deep knowledge on the product side for sure. And then most importantly probably of course of all is find somebody who will fit from a leadership perspective, somebody who can inspire and lead because we have a very talented team underneath and they're very capable when it comes to understanding the product in the various businesses, but we need somebody who definitely can lead them from an inspirational perspective and style perspective that will fit in the culture of the company. So, there definitely is some very specific filters that we're sifting through. This is a really phenomenal opportunity, it really is. It's very unique. I don't think there are many cases where you get in – or somebody who gets an opportunity to come into a business that's almost $20 billion in scale and make an immediate contribution and at the same time have a chance to develop their career even further over time. So, I feel good that we are going to be able to get a great leader.

David Glick - Buckingham Research

Thank you very much for that color and perspective. Good luck.

Kevin Mansell

Thanks.

Operator

Our next question comes from the line of Dana Telsey from Telsey Advisors. Your line is open.

Dana Lauren Telsey - Telsey Advisory Group

Good morning, everyone.

Kevin Mansell

Good morning.

Dana Lauren Telsey - Telsey Advisory Group

Hi. As you look at the store remodels, how are they doing? What are you seeing in their performance? And any adjustments that you're making to any of the new remodels as you go forward? And then lastly, with the new product introductions set for the second half with Juicy and IZOD, marketing plans, budgets, what should we be looking at as that gets introduced? Thank you. Hello?

Operator

Ladies and gentlemen, this is the operator, today's conference will continue momentarily. This is the operator. Today's conference will continue. Dana Telsey from Telsey Advisors, please ask your question.

Dana Lauren Telsey - Telsey Advisory Group

Hi, I hope everything's okay. Just wondering on the performance of the store remodels, any further color on how those are doing and any changes you're making to future remodels? And lastly, with the big introductions of IZOD and Juicy in the fall, marketing, budgets for marketing, how are you thinking of those product introductions? Thank you.

Kevin Mansell

There are specific things that we've done that are definitely big winners. Three that we've called out, one is operational and it might not be that exciting, but from a customer's perspective, it's got great impact and that's moving our customer service space to the front of the store, at the door adjacent to our POS. It gives us incredible leverage on the payroll side but most importantly it's given us a much better experience. And as we think about the importance that buy online, pick up in store will have which will all happen in customer service, we think it's going to just grow in importance. Second is beauty and you can tell we're pretty excited about the beauty results. We're accelerating the rollout of beauty. We're looking at ways to accelerate it even faster, because we are getting actual dramatic lifts in beauty and lifts in total store as well in the beauty test stores. And then third, probably the area that has some of the biggest facelifts on the product side are the juniors, accessory worlds and again, we've had great response and you can see for the first time, it's certainly not about necessarily the environment but we've had pretty dramatic improvement in our juniors business. On the product side, we're going to support the IZOD and Juicy launch significantly. So it will have the full weight of our marketing efforts both online and in-store. And it will be across our platforms of print, direct mail, digital and broadcast. And we know the importance of those two brands to our fall business and they're going to be supported as a result of that. Overall, that was always built into our original plan for marketing, so there is really no change in that.

Dana Lauren Telsey - Telsey Advisory Group

Thank you.

Kevin Mansell

You're welcome.

Operator

Our next question comes from the line of Patrick McKeever from MKM Partners. Your line is open.

Patrick McKeever - MKM Partners LLC

Okay. Good morning. I know you're not giving quarterly guidance anymore, but just wondering if you might have some thoughts on just the second quarter going up against the only positive comp from last year, any thoughts there?

Kevin Mansell

No. I mean, overall, I think on the positives, if you think about puts and takes in the second quarter, stacked comps I think are probably not a reliable predictor of performance for anybody. So whether we were positive or negative last year I think has little to do with whether we will be positive or negative this year. I think the driver is going to be some of the things we've talked about in the call. On the positive side, I would say I don't know that you can ever hope to make up sales in categories like seasonal-related businesses. When they don't happen early in the year, it doesn't translate into incremental sales in the second quarter. But I also would expect fully to be honest that we would have more normalized sales in those seasonal categories. So I think that just in the background is generally kind of a positive thing for the second quarter. I don't know if there's anything else, Wes, you'd call out?

Wesley S. McDonald

No, I think we expect improvement; how much remains to be seen. A lot of it's going to depend on what you talked about in terms of weather demand.

Kevin Mansell

The second piece is obviously we called out clearance as a headwind in the first quarter year-over-year, clearance inventories were down substantially and naturally that translated into lower sales. We're pretty much anniversaried that and so as we go into the second quarter we wouldn't expect that to be a headwind the way it was in the first few years.

Patrick McKeever - MKM Partners LLC

Okay. And then just a question on beauty care. How big a business is that for you as a percent of total sales and how big do you think it can be as you roll out the expanded footprints?

Wesley S. McDonald

It's less than 2% of total sales and our goal would be to double it in five years, and we're well on our way to that all-in since we launched it probably somewhere in between 30% and 40% all-in.

Patrick McKeever - MKM Partners LLC

Great. Okay, thanks, guys.

Kevin Mansell

Thanks, Pat.

Operator

Our last question comes from the line of Stephen Grambling from Goldman Sachs. Your line is open.

Stephen Grambling - Goldman Sachs Group Inc.

I think you guys already got me, but maybe I will sneak one other in there.

Kevin Mansell

You already got two questions.

Stephen Grambling - Goldman Sachs Group Inc.

All right.

Kevin Mansell

Thanks, Stephen.

Wesley S. McDonald

Thanks, Stephen.

Stephen Grambling - Goldman Sachs Group Inc.

Thank you.

Kevin Mansell

Bye-bye.

Wesley S. McDonald

Thanks, everybody.

Operator

This concludes today's conference call. You may now disconnect.

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