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Home Upgrade Pays Dividends for Kohl's

Home Departments Leading Comp Sales, Driving Margin Gains

Menomonee Falls, Wis. — The home category was the brightest star of Kohl's Corp.'s six lines of business during its second quarter, the retailer reported last week.

All six of its businesses areas showed consistency of good performance during the period, but home's 8% comps proved by far the strongest.

“Home continues to see strength in bedding, bath and housewares,” noted Kevin Mansell, president, Kohl's. “Home had the largest comp increase for the quarter and the season. It comped at the top of the six lines of business, so we're obviously pretty happy about that.”

Mansell attributed this to “a tremendous amount of changes in the merchandise content” by the merchant team, and the plan is to continue upgrading price points into a “better-best” bracket and improving selection on contemporary styling.

“It is showing in average ticket in every classification — bedding, bath and housewares,” he said.

Also helping home's performance has been the recent rollout of the home re-flow, which Kohl's has added to roughly 200 stores, bringing the total number of units with a home category reflow to more than 400.

“The merchandising of the new product is being really accepted by the new customer,” Mansell said. “Our price points are actually up, the customer is excited about the new product and she is seeing new presentations that show a little more expensive merchandise — not a whole new tier, but higher than we've been. So we're thrilled with an 8% comp.”

Overall for the quarter, Kohl's reported a net sales increase of 14.0% to $3.3 billion compared to $2.9 billion for the same period a year ago.

The comp sale gain for the chain was 5.5%.

Net income increased 24.1% to $232.4 million, up from $187.2 million a year ago.

Other highlights during this strong period for the 749-unit chain included increased transactions per store, which rose 4.1% year-to-date.

“This is clearly a result of our merchandise content combined with our marketing initiatives,” Mansell said. “The higher traffic level shows that our multi-media approach is drawing new customers into the stores.”

Also on the marketing front, Kohl's is confident about its back-to-school campaign, which includes three broadcast spots that feature celebrity appearances by Hispanic star Cheyenne, '80s rocker Pat Benatar, and famed extreme skateboarder Tony Hawk.

“We've put together a strong marketing calendar for the third quarter in all forms of media,” he continued.

Kohl's is also emphasizing direct mail during this new quarter, for existing stores and its new store openings in October.

Kohl's real-estate initiatives call for 68 new units set to open during the third quarter — of which two will be in the new prototype.

On Oct. 4, the company will host an investor conference and store tour in Tampa, Fla., where it is opening one of these new formats.

The company offered few details about this new prototype. Chairman and ceo Larry Montgomery would only say, “We're looking to make it a more exciting shopping experience, an easier shopping experience for the customer, one that is friendlier and more convenient, and showcases the updated contemporary and better-best products we're continuing to add to our assortments.”

Of the new store openings, October will see the bulk, 65, while three more are scheduled for November — completing the opening of 85 stores in fiscal 2006.

During the third quarter, the company will make its initial entry into Washington State with 4 stores in the Seattle market, and expand its presence in Florida with the addition of 3 stores in Tampa.

In the long term, Kohl's remains on track to open 500 stores over the next 5 years.

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