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Kohl's Clips Inventory as Home Slumps

Home trailed the company as "clearly the weakest" category at Kohl's during the first quarter, the 957-unit mid-tier department store reported last week.

"Of our six business groups, [home] had the worst performance in the first quarter," said Kevin Mansell, president.

More bad news, he said: "We don't see that turning around dramatically in the near term."

Kohl's reported net income of $153.0 million, down 26.8% from $209.0 million in the year-ago period. Sales of $3.62 billion were up 1.5% from $3.57 billion a year ago, as comps fell 6.7%.

Recent new brands have been infused into home to stir interest, namely the addition of the Bobby Flay collection under Kohl's exclusive Food Network program, and the effort is helping somewhat. "The launch of the Bobby Flay line and expansion of the Food Network brand platform continue to perform very well," Mansell said.

Also providing support to home is Kohl's conservative inventory approach.

"We're very focused in home on managing in-stocks properly and keeping our in-stock percent up," Mansell explained. "Our inventory reductions aren't equal across the store. Home inventories are running much closer to last year's level because we're committed to having a good customer experience in terms of in stock."

This approach is being taken storewide as the soft economy continues to affect Kohl's overall sales.

"Considering the uncertainty in the environment, we intend to continue our conservative planning in both sales and inventory levels going forward," said Mansell, who added Kohl's per store inventory reduction goal of 9% has been achieved and "puts us in an excellent position to flow fresh receipts as needed throughout the second quarter."

The month of May has proved a slow start for Kohl's second quarter. But the rolling out of the U.S. government's stimulus checks are expected to somewhat buoy what is otherwise expected to be a slow June and July spending period among Kohl's shoppers.

"We definitely have strategized stimulus checks into our marketing investment over the quarter," Mansell said. "We think there's a convergence of weaker performance on our basis last year; we were negative last year in June. What we see is some opportunity to do some more aggressive marketing in direct mail. All those things give us a little better confidence about spending in June and July."

Price increases from overseas sources have not yet impacted Kohl's, and are expected to remain controlled at least through the first half of 2009.

"Overall for 2008 the pricing picture is basically the same as it has been," he said.

Isolated categories like leather and sweaters have experienced some price hikes. "But overall, across the whole store and the big numbers, we're really not seeing an impact," Mansell said. "And as we look into '09, at least the visibility we have in the first quarter or first half of the year, I also think we can either eliminate or mitigate price increases overseas."

He noted Kohl's "pretty aggressive partnership" with sourcing firm Li & Fung, which "allows us to manage and move countries of production on a lot of our key programs to make sure that if there are increases — for instance in a country like China — we have the ability to move the production elsewhere."

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