Wesley S. McDonald - Chief Financial Officer & Executive Vice President R. Lawrence Montgomery - Chairman of the Board Kevin Mansell - President, Chief Executive Officer & Director

Jeffrey P. Klinefelter - Piper Jaffray Lorraine Maikis-Hutchison - Banc of America Charles Grom – JP Morgan Robert Drbul – Barclays Capital [Uda Werner – Bernstein] Adrianne Shapira – Goldman Sachs David Glick – Buckingham Research Ericka Maschmeyer – Robert W. Baird & Co., Inc. Daniel Binder – Jefferies & Co. Lizabeth Dunn – Thomas Weisel Partners Michael Exstein – Credit Suisse Deborah Weinswig – Citigroup

My name is Christian and I will be your conference operator today. At this time I would like to welcome everyone to the 2008 fourth quarter Kohl’s earnings release conference call. 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) Statements made on this call including projected financial results are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such forward-looking statements. Such risks and uncertainties include those that are described in the Item 1(a) in Kohl’s 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 replays of this call will be available for 30 days but this recording will not be updated so if you are listening after March 26th it is possible that the information discussed is no longer current. I would now like to turn the call over to Wes McDonald. Wesley S. McDonald: With me today is Larry Montgomery, Chairman, Kevin Mansell, President and CEO and myself, CFO. Starting off with a financial performance I’ll go over that. Kevin will talk about our merchandising, marketing and inventory management initiatives. Larry will speak to the store experience and our expansion plans and the Kevin will wrap up with our earnings guidance for the year and the first quarter. Total sales for the fourth quarter were approximately $5.2 billion this year versus $5.5 billion last year a decrease of 4.6%. For the year total sales decreased .5% to $16.4 billion. Comp sales for the quarter decreased 9.1% driven by a 7.9% decrease in transactions per store. Average unit retail increased 3.2% but was offset by a 4.4% decrease in units per transaction resulting in a 1.2% decrease in average transaction value. For the full year comp sales decreased 6.9% driven by a 5.9% decrease in transactions per store. Average transaction value decreased 1% as a result of a 1.9% increase in average unit retail and a 2.9% decrease in units per transaction. The South Central and Southwest regions led the company for the quarter but underperformed the company average for the year. For the year the Northeast, Mid-Atlantic and Midwest regions led the company. Our credit share was 44.4% for both the quarter and the year an increase of over 200 basis points in both periods. Moving on to gross margin, our gross margin rate for the quarter was 34.8% up 2 basis points from last year. For the year gross margin increased 44 basis points to 36.9%. The increases reflect continued inventory management, lower clearance levels and higher penetration of private and exclusive brands. We would expect gross margin for fiscal 2009 and the first quarter to be flat to up 10 basis points over last year. Moving on to SG&A, SG&A increased 3.3% for the quarter and 6.5% for the year reflecting our ongoing efforts to control costs in the current economic environment. As expected, SG&A increased more than sales but less than new store growth. The fourth quarter growth and expenses was also lower than our 5% to 6% expectation. Credit and distribution expense leverage for the quarter and credit leverage for the year, as you know we have a revenue sharing agreement with JP Morgan Chase relative to our Kohl’s credit card accounts. Even though we continued to see an increase in the number of accounts which carry balances and ultimately charge off these increases are more than offset by increases in both finance charges and late fees so this business continues to produce positive year-over-year results. We would expect our SG&A expenses to increase 3% to 4% for both the first quarter and for fiscal 2009. Depreciation expense was $143 million for the quarter and $541 million for the year up 13.5% for the quarter and 19.7% for the year. The increases are primarily due to new stores. Depreciation as a percentage of sales was 2.7% for the quarter and 3.3% for the year. This reflects an increase of approximately 44 basis points over the prior year quarter and 56 basis points over the prior year. Depreciation is expected to be approximately $595 million in fiscal 2009 and $146 million in the first quarter. Pre-opening expenses were $4 million for the quarter $1 million lower than the prior year quarter. For the year pre-opening expenses decreased 31% to $42 million as a result of the decrease in the number of new stores opened in the current year. As a reminder we opened 75 stores in 2008 compared to 112 stores in 2007. Pre-opening expenses are expected to be $51 million for fiscal 2009 and $15 million for the first quarter. The increase over last year is primarily due to the requirement to expense step rent seven months prior to the opening of a new store for our ground lease stores. The mix of our 2009 new stores is much more heavily skewed towards ground leases than normal with the opening of the acquired Mervyns locations. Operating income for the quarter declined from $684 million to $573 million this year. For the year operating income was $1.5 billion for 2008 compared to $1.8 billion for 2007. Net interest expense increased to $30 million for the quarter compared to $23 million in the prior year primarily due to reductions in interest earned on our investments. Net interest expense for the year was $111 million compared to $62 million in the prior year. This increase was primarily due to $1 billion in debt we issued in September, 2007 as well as reductions in capitalized interest due to decreased capital spending in 2008. Interest expense is expected to be approximately $125 million for fiscal 2009 and $33 million in the first quarter. Our income tax rate was 38.1% for the current year quarter and 37.9% for the year. We expect our 2008 tax rate to be approximately 38% for both the first quarter and fiscal 2009. Net income for the quarter was $336 million compared to $412 million last year. For the year net income was $885 million compared to $1.1 billion last year. EPS for the quarter was $1.10 compared to $1.31 last year and for the full year earnings per share was $2.89 this year versus $3.39 last year. Moving on to the balance sheet, we currently operate 1,004 stores compared to 929 at this time last year. Gross square footage was 89 million at year end 2008 and 82.5 million at year end 2007 an increase of 7.8%. Selling square footage increased from $70 million at year end 2007 to $75 million at year end 2008 an increase of 7.3%. Moving on to investments, we had $841 million in short and long term investments at year end 2008 compared to $483 million last year. The majority of the short term investments are in money market funds with a small portion in commercial paper. As a reminder we reclassified our auction rate securities from short term investment to long term investments during the first quarter of fiscal 2008. We have also recorded temporary mark-to-market adjustments of $46 million net of tax through equity related to our long term investments. Moving on to inventory levels, our inventory of $2.8 billion is 2% below last year in total and inventory per store is down just over 9%. Our inventory levels reflect our continued commitment to conservative sales and receipt planning. Clearance units per store are significantly lower than total inventory. Moving on to fixed assets, we generated cash from operations of $1.7 billion in 2008 approximately $700 million more than last year’s generation. Capital expenditures were $1.0 billion in 2008 down 34% from $1.5 billion last year. Our free cash flow was $687 million almost $1 billion better than last year. We expect capital expenditures of approximately $800 million for fiscal 2009 and free cash similar to this year. Accounts payable of $881 million versus last year’s $836 million up about 5.4%. Our accounts payable as a percent of inventory was 31.5% versus 29.3% last year. In terms of weighted average number of shares basic shares for the quarter was 304.6 million, year-to-date 305.9 million, diluted shares for the quarter 305.1 million, 306.7 million. We have not repurchased any of our stock since July of 2008. We will continue to evaluate market conditions but do not currently expect to repurchase any shares in 2009. For your modeling purposes I would use 308 million shares for the year. With that I’ll turn it over to Kevin to talk about merchandising, marketing and inventory management.

As Wes mentioned comparable sales decreased 9.1% for the quarter and 6.9% for the year. All lines of business in all regions reported a decrease in comparable sales in both the quarter and the year. Accessories, footwear, men’s and children’s outperformed the company for both the quarter and the year. Accessories was led in the fourth quarter by sterling silver jewelry, handbags and beauty. In footwear children’s and athletic shoes reported the strongest performance. Men’s was led by basics and casual sportswear. Children’s was driven by infants and toddlers. Women’s and home underperformed the company for both the quarter and the year. In women’s updated sportswear and intimate were the strongest categories. In home bedding and small electrics performed best. Given the run rate of our business in 2008 our expectations for 2009 are for comparable sales to decrease 5% to 8% for both the first quarter and the full year. For the first quarter February will be better than that range, March should be within that range and April at the more negative end of that range. Moving on to our merchandise initiatives we continue to be very pleased with the performance of brands introduced in 2008. Jumping Beans and opening price point children’s private brand targeted to provide the value mom is looking for in her children’s apparel is driving the infant and toddler success. The Gold Toe hosiery business continues to help men’s, women’s and children’s basics outperform the company. The Elle brand has been an overwhelming success, it’s part of the reason our missy updated business has been the leader in women’s sportswear. The expansion of our Food Network brand platform to include Bobby Flay has helped house wares and small electrics outperform the rest of home. In our exclusive partnership with Fila Sport launched in September in men’s, women’s and children’s apparel, footwear and hosiery, we are very pleased with the results so far. All of our other exclusive brands continue to perform very well. For the year quarter our exclusive and private brands together were up 105 basis points in penetration to 40.3% of sales primarily due to our exclusive national brands. For the year penetration is 41.8% up over 260 basis points. The customer continues to respond well to our new brand launches and as you just heard the penetration continues to increase and has substantial room to grow particularly on the exclusive brand font. Our research continues to show that that acceptance is being driven by the very high brand awareness each of these brands has when we launch them. That success is embedded into our thinking for our planning of this year’s launches of Dana Buchman launched Presidents’ Day and Hang Ten in 30 stores in April in our hot and warm markets. We would also expect to have further news on new exclusive brand partnerships to share with you shortly. On inventory management as we mentioned earlier average inventory per store is approximately 9% lower than last year stronger than the mid single digit decreases that we had originally guided towards achieving. The level of reduction in clearance inventories is substantially larger approximately 30% less than last year on a per store basis. Within our regular priced inventories the actual changes by area year-over-year vary widely based on how we have positioned inventories and receipt plans for each area. Some areas like women’s sportswear are down more than the total store. Basic areas like men’s, women’s or children’s underwear and hosiery are actually higher than last year per store. Receipts are flowing by area much tighter to where we see sales occurring. We would expect our inventory per store at the end of the first quarter to be down mid single digits per store with a additional investment in basics. As I just mentioned in addition to carrying a lower overall level of inventory we continue to focus on flowing receipts in season as needed for our cycle time reduction initiatives. This benefited us greatly in achieving both our inventory and our gross margin goals in 2008. Markdown optimization will continue to benefit us in its third year of use even with these lower inventory levels. Our size optimization initiatives continues to develop and we now expect significant benefits this fall with a goal of 70% of our sized receipts on the program by the end of fiscal 2009. As Wes mentioned we expect gross margin for fiscal 2009 and the first quarter to be flat to up 10 basis points over last year. We believe this allows us to be very flexible in our pricing as we expect the environment will remain extremely competitive. On marketing, as we’ve indicated we believe the economy will continue to be very challenging through 2009 and thus very difficult for our customer. Our marketing strategy centers on the opportunity already inherent in the Kohl’s brand positioning us as the smartest customer choice and ultimately to continue to gain share in 2009 just as we did in 2008. Marketing expense is being planned in line with our total sales on a rate basis. We intend to continue to optimize our marketing mix, increase our investment in direct mail and digital advertising while still maintaining strong support in inserts, television and radio. These vehicles are all going to carry a very relevant message to our customers, we know they’re working hard to manage their households and are assessing all their expenditures very carefully. As such we’re positioning Kohl's as the smartest customer choice by helping them stretch their budget and get more for their money through a very simple message, the more you know about Kohl's the more you will shop there for yourself, your family and your home. Areas of focus for this message will b additional savings events like Power Hours, our Kohl's cash events to use around our world class exclusive brands. Another key area will be educating our customers in the significant savings opportunities that come with having a Kohl's charge card whether it be a secret sale or our pick a day savings event. We’ll capitalize on our industry leading no hassle return policy as well so they shop with confidence every time they come in. Bottom line we’re confident that the more the customer knows about the Kohl's value proposition the more she’s going to shop Kohl's and the more market share we’ll gain in a challenging economy. Larry’s going to take you through our store expansion and store experience. R. Lawrence Montgomery: In 2009 we’ll utilize our strong financial position to continue to expand in new and existing markets and continue our remodel program in order to grow market share in a very difficult environment. We’re planning to open approximately 55 stores in 2009 with 19 opening in the spring including our entry into Alaska our 49th state. The balance will open in the fall. This is a slight increase from our previous projection of 50 stores as we were able to secure an additional five Mervyns locations after the auction where we obtained the rights to 31 locations. The vast majority of our fall openers will be these former Mervyns sites. Our decisive action in obtaining these Mervyns sites is an indication of our financial strength and experience in obtaining valuable real estate and improving the performance of those sites. Many of these sites are irreplaceable as they are in highly populated areas where there’s no ground up alternatives. This acquisition puts us in a stronger position to be the retailer of choice in California. In addition we plan to remodel 51 stores in the spring season an increase from 36 in 2008. These remodels will be split into three waves and reopen in March, May and August. We’ve been able to compress the remodel duration from 16 to nine weeks over the past two years in order to minimize the disruption to the stores and the cost of the remodels. The increase in the number of remodels differentiates us from the competition and is a critical part of our long term strategy. We believe it’s extremely important to maintain our existing store base in a tough economy with significant competition for customers whose disposable income is shrinking. We saw an 8% improvement in our customer service scores in our stores over the last year due to improvements made in the physical environment of the stores and a focus on engaging our customers on the sales floor and at point of sale. We also scored number one on the American Customer Satisfaction Index a survey done by the University of Michigan and includes all of our peers. The customer will be choosing a select number of stores to shop in this environment and we want to be at the top of her list. We will continue to invest in customer service in 2009. The consolidation has started in retail. We believe in 2009 that this trend will continue. We should benefit through increased sales in existing locations such as California and we will maintain flexibility in our real estate pipeline to take advantage of any opportunities that may arise as other chains enter bankruptcy or liquidation. With that I’m going to turn it back to Kevin who’s going to give you our earnings guidance for the first quarter and year.

First I’d like to make a few comments on our performance in 2008. On both a fourth quarter and 2008 annual basis we have outperformed our competitors on a number of metrics. We proactively and aggressively reduced our inventories and receipts for 2008 as we saw trends indicating a weakening demand cycle back in the fall of 2007. This was a positive for us in our gross margin performance which was up 52 basis points for the quarter and 44 basis points for the year. It also impacted our free cash flow results very favorably. Free cash flow improved by almost $1 billion over last year. Those gross margin results were also aided by the investments we had made previously in technology including assortment planning, markdown and size optimization. As a result we have moved well beyond just cutting overall inventories but are increasing inventory effectiveness by flowing receipts closer to sales aided by our cycle time initiatives. We believe that that will be both a short term and a long term advantage for us. Additionally our efforts to create a differentiated brand portfolio around exclusive brands that have strong existing equity have led to a significant increase in penetration of these brands to our total sales. There has been immediate acceptance by consumers around brands like Simply Vera, Vera Wang, Chaps, Candies, Tony Hawk, Food Network, Daisy Fuentes, Elle, Fila Sport and new this year Dana Buchman and Hang Ten. These brands had high consumer awareness at their respective launches. This mix improvement has continued to benefit gross margin results and position us for future new brands as well as creating a marketing platform for us to create separation from our competitors. We also feel strongly that our partnership with Li & Fung on sourcing has been a significant competitive advantage for us in both private and exclusive brands and will aid our margin improvement as well. On the new store front while we’re cautious in our opening plan we believe that there will continue to be consolidation and failures which may open up attractive real estate opportunities such as the Mervyns stores we were able to absorb this year. Finally and very importantly we’re beginning to get traction on managing expenses using lower comp assumptions. While SG&A was up 6.5% for the year it was only up 3.3% in the fourth quarter. We would expect to achieve this same type of result in 2009 despite adding 55 more stores this year. With that let me share with you our initial guidance for fiscal 2009 and the first quarter. Implied in our guidance is the fact that we expect demand to continue to be weak throughout 2009. We’ll use the advantages I just described to drive our value proposition to maximize our sales. We would expect to continue to outperform our competitors in total sales and gain market share in 2009 just as we did in 2008. For both the quarter and the year we would have the following assumptions, total sales decrease of 1% to 4%; comp sales a negative 5% to negative 8%; gross margin performance of flat to up 10 basis points over last year; and SG&A dollars to increase 3% to 4% over last year. This would result in earnings per diluted share of $2.00 to $2.30 for fiscal 2009 and $0.27 to $0.34 for the fiscal first quarter. This guidance does not reflect any additional share repurchases in fiscal 2009. With that we’d be happy to take some questions.

(Operator Instructions) Our first question comes from Jeffrey P. Klinefelter - Piper Jaffray. Jeffrey P. Klinefelter - Piper Jaffray: First question is for Wes on the credit, I heard you at the beginning just caught the end of your comments on it, still profitable with write offs going up but offset by some higher fees. I think that’s the summary that you led with, but can you give us any more insights on your expectations for receivable next year? Are they going to be with tighter underwriting standards are you anticipating those receivables dropping, any pressure from that on comps? And again just remind us of the mechanics of how this flows through your income statement and when it might start deteriorating, the contribution that you’ve been receiving? Wesley S. McDonald: You asked a lot of questions, I’ll try to answer them all. I think we’ve seen approval rates deteriorate quite a bit in the fall, particularly in the fourth quarter and we’ve built that expectation in our guidance. We’ve tightened our standards a little bit especially in high risk states, the states that most folks are continuing to mention, California, Florida, Arizona, Nevada. We’re also seeing some deterioration in some other states in the Midwest related to the auto industry. I continue to believe it’s going to be of benefit to us in terms of leveraging next year. I don’t expect it to be as big a benefit as it was this year, however that’s built in our guidance and SG&A. We treat it as a contra SG&A account and we settle up with Chase on a monthly basis and it’s really a net revenue number which takes into account finance charges plus late fees plus any other revenue less bad debt expense. As you probably remember, Jeff, we also do all the customer service and marketing on that, that’s all on our nickel and all built into the SG&A assumptions we gave you earlier. Jeffrey P. Klinefelter - Piper Jaffray: Kevin, in terms of the marketing plans, I can’t remember if you mentioned this at the beginning but the budget for 2009 in terms of the actual marketing dollars, what direction it’s going and then shifting between mediums, we’re seeing obviously the online frequency kick up or seems to have kicked up for everybody this last couple of quarters. Is there an efficiency that you’re starting to gain by leveraging the online medium a little bit more so than print and can that drop your dollars?

From a total basis the guidance we would give is that marketing is planned essentially in line with sales on a rate basis. So think about it from that perspective. As it relates to the mix, yes we’re definitely increasing our investment in direct mail but the largest increase in investment on a mixed basis is in fact in digital advertising. So while we’re going to continue to have substantial support in our more traditional advertising like our tabs or our broadcasts, both TV and radio, digital advertising has got the largest single increase in the marketing budget. Jeffrey P. Klinefelter - Piper Jaffray: So while the total dollars might not drop any faster than sales, you’re getting more in prints for the same dollars by using digital?

Yes.

Our next question comes from Lorraine Maikis-Hutchison - Banc of America. Lorraine Maikis-Hutchison - Banc of America: Could you just update on where you see opportunities for cost cutting this year? How much have you done already and what do you have left to do? Wesley S. McDonald: I think we covered it in the call. We gave guidance at the beginning of the year that our SG&A would be up 9% to 10%. We achieved an increase of 6.5% and an increase in the fourth quarter of 3.3%. That gives us confidence that the SG&A benefit our increase will be around that much for 2009. Having said that we continue to look daily at opportunities to continue to reduce expenses and we’ve done a nice job I think in the stores, organization, trying to flex store payroll down with sales where appropriate without hurting the customer’s service experience that Larry mentioned earlier. Lorraine Maikis-Hutchison - Banc of America: Can you provide some color on what you’re basing your negative 5% to 8% comp on? Is that reflective of the current trends that you’re seeing? Wesley S. McDonald: It’s reflective of the year trend which was down 6.9% as we mentioned and reflective of the quarter trend which was down 9.1%. It doesn’t have anything to do with our February trend.

Our next question comes from Charles Grom – JP Morgan. Charles Grom – JP Morgan: Wes, could you just remind us what your comp hurdle rate is looking like for 2009 and also the sensitivity to the margin line for every one point comp move up or down? Wesley S. McDonald: It’s basically flat for 2009. We hope to do better as we get through the year and as it goes down it’s probably around 15 basis points on the down side and probably on the up side it’s around eight to ten. Charles Grom – JP Morgan: Another one, Wes, could you just wash out the step up in rent that you’re going to see that’s going to increase the pre-opening? I think you said $51 million which was higher than we thought, actually about $0.08 higher. Wesley S. McDonald: Its’ really a function of the fact that on ground leases you have to start expensing them seven months ahead of time so if we open all those Mervyns stores in October a vast majority of those are ground leases we have to start taking expense on that in February. It’s not a cash expense, it’s just how you have to account for straight line rent when you factor that in. It’s also possible we want to make a little bit of a splash in October when we’re opening 30 some stores in California. Charles Grom – JP Morgan: So is your actual pre-opening going up or is it just the way it accrues through the model? Wesley S. McDonald: It’s the way it accrues through the model. The actual cash out the door is actually down. Charles Grom – JP Morgan: One for Larry and Kevin, could you guys discuss a little bit about any trends you’ve seen in California over the past couple of months and any benefit you’ve seen from that consolidation in retail and I guess how much of that you’re assuming will continue in your guidance or if you’re not assuming that you’re going to get that benefit?

The short answer is we’re not making any assumptions about business going forward as it relates to the California, the elimination of Mervyns as a particular competitor in California. I think Wes described it well, when we put guidance out of negative 5% to negative 8% it’s basically based on our 2008 actual results being a negative 6.9%, in the fourth quarter 9.1%. So there really isn’t anything about that in there. More recently we have seen upticks in particular stores that are closely located to former Mervyns locations. I’d leave it that way.

Our next question comes from Robert Drubel – Barclays Capital. Robert Drubel – Barclays Capital: The first question I have is on the gross margin, you talked about the gross margin guidance giving you some flexibility to respond to the competitive environment, can you talk a little bit more about what you’re seeing in the competitive environment? How much flexibility you think you have with the guidance that you just gave us there.

It’s not so much about the competitive environment, it’s about the customer environment. I think what we’re saying is that the initiatives that we had in place last year which we covered in depth that definitely helped improve margin are still in place, but we want to make sure that we have the flexibility to use that potential lift to drive and deliver great value because we recognize that the customer is facing a very difficult economic environment. So it’s more about the customer environment, it’s not really about the competitive environment. Robert Drubel – Barclays Capital: When you look at the inventory and the levels that you guys are running at now, how much more room do you think you have to take inventories down throughout this year?

We’re essentially planning to flow receipts appropriately in line with sales and I think our big focus which we tried to call out, Bob, in the call itself is we’re not going to simply cut inventories. Our inventories are going to be lower, but they’re going to be lower because we’re more effectively flowing receipts to the sales demand. Having dramatic or knee jerk reactions to cutting inventory I don’t think is a good strategy. We made cuts proactively last year in advance of the demand weakening and it served us well. They’re now down, they’re actually down further than our actual sales performance. We entered the quarter with 9% plus less inventory per store in a quarter in which we expect sales to be down 5% to 8%. I think we’re really well positioned. The inventory is actually down further than the sales are and we’re going to flow receipts based on sales demand. That’s really what we’re saying and hopefully make more effective use of the inventory. Wesley S. McDonald: As Kevin mentioned too in his comments we’re making an investment in basics which has very little markdown risk and our clearance inventories are down 30% on a per store basis and we expect to continue to have clearance inventories down to last year each quarter. Robert Drubel – Barclays Capital: One more final question, when you look at a conservative outlook for '09 I think as you said in the comments and in the press release, where do you think you’re being most conservative in your outlook across the board?

I think to be honest with you I think we’re being reasonable in our assumptions based on the run rate of the business that we have seen. To be frank if you took each number, the run rate of the business on a comp store basis was down 7% so we’ve guided 5% to 8%. We think that’s reasonable and rational. The run rate of the margin was actually 44 basis points, 50 in the fourth quarter. We’re only guiding flat to 10 but the reason we’re guiding that is what we just discussed, we want to have a lot of flexibility to drive demand because the customer has told that her budget is smaller than it used to. Therefore if we’re going to do more sales, we’ve got to get more share. From an expense perspective, basically I think Wes described it well, we’re guiding 3% to 4% increase in SG&A which is what we achieved in the fourth quarter and better than the whole year. I feel like while we’re being conservative from the perspective of just the overall snapshot because we have exceeded our estimates before, it pretty much matches up to what we’re experiencing in '08 including the fourth quarter.

Our next question comes from [Uda Werner – Bernstein]. [Uda Werner – Bernstein]: I wonder if you could please comment a little bit on the store renovations in terms of how much cap ex per store you think that might take and also I wonder if you could be a little bit more specific about these innovations that you’re seeing through the course of the year, what categories might they be in in particular? R. Lawrence Montgomery: I can address the remodel, we spent about $2.3 million in remodels on a per store basis last year. 51 remodels this year, you can just do the math on that. That’s been a huge reduction over the last two years. I think a couple years ago we were spending a lot closer to $3 million a store so we’ve become more efficient as well shortened the duration. That’s important because obviously during the disruption and the construction period you’re losing sales because people are trying to find out where everything has been relocated to. So the shorter duration, the more chance you have to pick up sales after the construction when we do the re-grand openings. I’ll let Kevin answer the other question.

What was the other question, Uda? [Uda Werner – Bernstein]: What kind of new product innovations or introductions you were thinking of? You alluded to them but I was wondering what categories they might be in.

I don’t want to forecast something that we haven’t finalized yet. I would say if you look at past history over the course of the last three years we’ve had a pretty consistent roll out of legitimate new brands each and every year and we intend to have some this year as well and there will be a couple this spring. [Uda Werner – Bernstein]: Two more little questions at the end, one maybe you could comment on new store productivity and also how the Internet has been doing? R. Lawrence Montgomery: New store productivity for the year is in the mid 60 range. Obviously some of our new stores were affected by the fact that we opened an awful lot of stores in those four states that have been most affected by the economy, Arizona, Nevada and Florida. Some of that’s also a mix as we’ve opened more small stores this year than we have in the past. The Internet business has been very strong. We saw I think it was $340 million for the year, so up about a little over 40% and continue to make a lot of progress there. Those combination customers with brick and mortar and Internet are obviously our most profitable customers and also lead to high sales. We are very encouraged with that and expect that to continue to grow substantially better than the industry as a whole on the Internet.

Our next question comes from Adrianne Shapira – Goldman Sachs. Adrianne Shapira – Goldman Sachs: Kevin, just following up on the conversation you had earlier in terms of taking some of the initiatives to improve margins and it sounds like if I understand investing in price. So, help us understand should we expect a sharper IMU in 2009?

Honestly Adrianne I’m not going to get in to the detail of how we’re competitive positioning our value equation. Just suffice it to say that we’re going to use the tools that have lead to improved merchandise margin to our benefit by driving better value. That’s the objective because we do think the environment we are in gives us a huge market share opportunity and we think as we look at the competitive set given their own performance last year and where they’re positioned they don’t have those tools in place to be able to do it. Adrianne Shapira – Goldman Sachs: Then maybe just help us think about when you look at your positioning, good, better and best across the nine box grid, where would you expect to focus your attention when we step back and look at the assortments.

We’re going to have balance. Balance is really important. When you think about the success we’ve talked about in our exclusive brands they’re generally better and best and they’ve been very, very well accepted I think because they’re legitimate brands. But, we are also very focused on value and as a result brands like Jumping Beans that we introduced last year have been a wild runaway success and that’s opening price point. So, I would say my answer to you is we are going to have balance. We are going to have strong opening price point and we’re going to use the tools that we have that are lifting our margin to drive that and then we’re going to balance in there new, better and best brands because we think we have competitors who we can take market share from. Adrianne Shapira – Goldman Sachs: Wes, you’ve done a great job in terms of taking down clearance levels, where do you think that can go to as a percentage of the mix? Wesley S. McDonald: I mean we’re going to continue to manage the inventory. It varies by month, in January and February it’s still a significant part of the mix but I still think we can continue to reduce clearance. The great thing about our planning allocation team and our merchants is some of our lower volume stores where we made the most progress in gross margin we actually had higher sales per store and lower store inventory per store. So, I’d like to continue to improve that across all grades of our store. We can continue to reduce clearance and continue to get increased sales per store and drive better gross margins. Adrianne Shapira – Goldman Sachs: So when do we start to anniversary some of those big declines?

Let me jump in for Wes, we’re looking at inventory first in total. So, you’re carving out a part that we call clearance because we are trying to show you that we’re making a lot of progress in both transitioning through it and selling through it. But, we expect to continue to run with lower clearance levels all year. This is not a sharp turn strategy, or a one-time strategy and we expect to run with lower inventory total levels all year. That’s the plan.

Our next question comes from David Glick – Buckingham Research. David Glick – Buckingham Research: A couple of questions, first in the traditional women’s sportswear area, I know that’s been a bit of a challenge and you hope certainly to have at least a partial answer with the introduction of Dana Buchman. I was wondering if you can give us some color now that you have Presidents’ Day behind you, is it big enough to be a difference maker and just your initial reaction to the launch?

I think the short answer is yes, it’s definitely big enough to be a difference maker. It’s been on the floor for basically less than a month but it’s been incredibly successful launch. It has far exceeded the plan we had for it. And, the most exciting news I think we saw was that the other major brand that we have on that same pad is Chaps, has also performed exceptionally well compared to last year. So, as we said when we talked about sales guidance, the month of February is not over but the month of February will be in fact better than the guidance of -5% to -8% that we gave and some of those things like Chaps and the success of the new Dana launch are a key component to that. David Glick – Buckingham Research: That goes in to my next question, when I look at your monthly sales flow I would not have guessed that February would have the highest relative plan. I would have thought that April would be better than March because of the Easter shift. I know there’s an extra day in March relative to April. Can you help us understand the Easter shift? You just answered the first part of my question that February is ahead of your expectations but if you can walk us through the Easter shift that would be helpful.

Well, it’s definitely implied in the fact that we expect a little better performance within the 5% to 8% in March versus April. There really isn’t much more to say than that. David Glick – Buckingham Research: So the extra day is worth more than you have that pre Easter week falling in to April?

It’s not really just about the extra day it’s just how we look at our promotional calendar and are year-over-year event strategy we think there is a bit more opportunity in March than there is in April.

Our next question comes from Ericka Maschmeyer – Robert W. Baird & Co., Inc. Ericka Maschmeyer – Robert W. Baird & Co., Inc.: Could you please give an update on your current average cycle time from concept to customer and your goals for improving that in ’09?

Well, the answer to that Ericka is a really broad answer because of course the cycle time initiatives are different depending on the specific brand. But, the cycle time initiatives that we have that have been employed in the recent new brand launches are working really well. Our results in Elle, a big function a reason that has been a runaway success is that cycle time initiatives have allowed us to buy and deliver much closer to when the customer is interested in buying. Those same cycle time initiatives were employed in the Dana Buchman launch as well. So, I think that over the course of the year will also have a positive impact on the Dana Buchman sales. Ericka Maschmeyer – Robert W. Baird & Co., Inc.: Is Simply Vera along those lines as well?

Well, we’re employing the same concepts to every one of our exclusive and private brands. But, as I said it varies greatly depending on the brand and the type of merchandise within the brand so I wouldn’t want to make a blanket answer to Vera because home is going to be different than jewelry, which is different than handbags, which is different than apparel. Ericka Maschmeyer – Robert W. Baird & Co., Inc.: Then on the Q3 call you mentioned planning for 60 remodels and today you said 51. Were there any specific reasons for that reduction? Wesley S. McDonald: Just managing the total cap ex as we also mentioned in the call we originally thought we’d have 50 stores opening next year and we’re going to have 55. So, we’re just kind of managing the cap ex spend we wanted to have.

Our next question comes from Daniel Binder – Jefferies & Co. Daniel Binder – Jefferies & Co.: A couple of questions for you, on the interest expense guidance you guided $125 for the full year if I heard you correctly. If you just generated $687 million in free cash this year, most of which was at the end of the year and $687 million or so next year I guess I’m a little confused as to why interest expense would be up that much year-over-year? R. Lawrence Montgomery: Because we were earning heck of a good rate during that little dislocation during the third quarter. Some of our auction rate securities we were earning 15% on. Interest rates don’t look so great right now, we don’t expect it to be any better going forward so it’s really a function of the rate not the cash. Daniel Binder – Jefferies & Co.: It seemed like a lot of cash generation. R. Lawrence Montgomery: Cash is good. More cash is better than not as much cash but we’re just making really conservative estimates on the interest rate. Daniel Binder – Jefferies & Co.: What kind of rate assumption do you use? R. Lawrence Montgomery: It’s like 1%. Daniel Binder – Jefferies & Co.: Any color you can give us on what you think the credit penetration and private label penetration will look like as a percentage of sales for the coming year?

On the private and exclusive brand penetration we expect it to be up. We don’t ever get in to trying to forecast the amount because it’s going to be up to the customer to decide that. But, given the new brands, the success of the new brands, the new launches that we have this year, the total percent private and exclusive brands will be up over last year. Wesley S. McDonald: I’ll piggyback on Kev’s answer because it was a good one, we expect to be up too but we’re not going to quantify it. I think it’s going to be a function of obviously new customers are going to struggle to get approved if they’ve never been a Kohl’s customer before, but I think we’ll start to see more sales on our Kohl’s card as the value messages come through in our marketing and we’ll pick up share that way. Daniel Binder – Jefferies & Co.: Then lastly in terms of benefits that you think you can accrue from markdown optimization and size optimization, can you put any numbers to that?

Again, we don’t get in to quantifying individual initiatives but we believe that all the initiatives that we’ve talked about give us the wherewithal to be aggressive in our marketing and flexible in our pricing and all of that is implied of the guidance of flat to up 10.

Our next question comes from Lizabeth Dunn – Thomas Weisel Partners. Lizabeth Dunn – Thomas Weisel Partners: I guess first just a clarification, the only reason that February is expected to be better than the trend that you’re expected for the full quarter is you’re running above plan? There’s not sort of shift or anything that’s happening. R. Lawrence Montgomery: We’re 26 days in to the month so we’ve got a pretty good idea of where February is going to be. Lizabeth Dunn – Thomas Weisel Partners: I understand that but there’s nothing that lead to? R. Lawrence Montgomery: There’s no event shift, we had similar events to last year. We had Presidents’ Day sales, credit events, the same thing. Lizabeth Dunn – Thomas Weisel Partners: So you’re feeling like obviously it’s running ahead of plan but it’s early in the year so not reasons to get excited and change your outlook versus what you experienced in the fourth quarter?

It’s early in the year, it’s even early in the quarter. It’s a relatively small month. Lizabeth Dunn – Thomas Weisel Partners: The private brands a percentage of sales I heard you mention that it’s up but I didn’t get the amount year-over-year, if you could share that?

I think what we actually said Liz was that the total was up both for the quarter and for the year but the quarter was up a little less than for the year. In both cases for the quarter and the year most of the pickup was actually in the exclusive brand side and the pickup was less on the private brand side but, they were both up. Lizabeth Dunn – Thomas Weisel Partners: Is there any risk at all associated with private and exclusive brands in that there’s no vendor in some cases on the back end to support you on the margin? Or, is the margin differential on those brands versus national brands so great that under almost any scenario you’d still come out ahead?

I mean our short answer is as long as we – because we didn’t do this in a vacuum, we’ve built an entire set of technology and cycle time and flow initiatives that support all of the private brand and exclusive brand initiatives. We’ve built an entire product development organization and launched a new office in New York which has been expanded dramatically. Once all those fundamental basis are in place then I think that private and exclusive brand penetration is always going to be a positive for us and it’s just a question of how quickly consumers embrace the brand. Still, the most important thing whether it’s private or national or exclusive is the merchandise. If the merchandise is great looking, they’re going to buy more. Lizabeth Dunn – Thomas Weisel Partners: Final question, is there any way to kind of break out with the 52 basis point gross margin improvement in the fourth quarter how much of that was due to sort of your markdown rate versus IMU?

Really the initial mark up versus markdown rate doesn’t really matter. I think we’re kind of saying the balance of positive lift due to better inventory management, a positive lift due to a better mix of private and exclusive brands and the impact of technology improvements all played a role in the improvement of merchandise margin. Lizabeth Dunn – Thomas Weisel Partners: So both were favorable? R. Lawrence Montgomery: Yes.

Yes.

Our next question comes from Michael Exstein – Credit Suisse. Michael Exstein – Credit Suisse: Kevin, you mentioned something about the budget of your customer getting smaller, is that information just intuitive or are you getting that directly from focus groups?

We’re getting that from both our own primary research throughout the third and then the fourth quarter and obviously the secondary research as well. But, our own primary research is clearly saying that consumers don’t expect a strong economy in the next six months to a year, that they intend to spend well within their budget. That’s the most important thing they have in their mind, is that they have to stay within their budget and that overall they expect to spend a little less on clothing. So all those things tell us that value is very important and we think and we know through our research that Kohl’s clearly has the best sales and consumers recognize us for that and we think that because of that we have a huge market share opportunity. Michael Exstein – Credit Suisse: Do they breakdown further their intention in terms of apparel sales? Do they give preference to the kids, or to the men, or to the women? How do they break that down?

We do research on all that, to be honest with you we’d be getting in to a lot of more proprietary information. But, in general I don’t think it’s unfair to assume that she will cut back for herself probably before she’ll cut back for her children. R. Lawrence Montgomery: That’s evident in our lines of business performance this year. Kids and accessories and men’s have led and women’s has trailed the company. Michael Exstein – Credit Suisse: Finally, you mentioned that cosmetics was relatively strong. What’s going on in that business? What are your plans for it, so forth?

It’s growing faster than the store. It outperformed the store pretty handily. That was driven both by our traditional beauty business but also by a more increased emphasis on fragrance, we provide great value there. We’ve reallocated our space allocation within the beauty department and its working and I’d say inventory effectiveness has improved a lot in that area. So, generally across the board while small, it was definitely a big success story. Michael Exstein – Credit Suisse: And your future plans?

More of the same would be good. I’d be happy with that.

Our final question comes from Deborah Weinswig – Citigroup. Deborah Weinswig – Citigroup: Kevin, you spoke about size optimization and I feel like we’ve been hearing lots of details around the roll out for quite a while. Why is it, and I don’t think this is specific to Kohl’s but why does it take so long to realize the benefits?

It takes so long because every single supplier we deal with all the way back to the factories in Asia must have systems in place and process in place in order to accommodate multiple different pre-packs or shipping packs per our needs and that takes a long time to convince them about the need for the investment, the need for the change in their processes and why ultimately and eventually actually it’s going to be a big benefit for them because it will mean less markdowns at the end because our size weight or value across the size spectrum would be more appropriate by store. It just takes a long time to get people to accept that and make the investment and then of course there’s a lead time involved in the product to begin with. Of course, it’s not a small task Deb so we have to do it area, by area, by area and brand, by brand, by brand. Deborah Weinswig – Citigroup: With regards to the fourth quarter you had guided most recently to earnings greater than $0.99 and $1.10 is obviously greater than $0.99 but what happened there that was so different than your original expectations. R. Lawrence Montgomery: I would say the margin was a little better than what we thought and as we were closing the books expenses were much better than we thought. We have to write all that stuff like on the Wednesday and we don’t close the books for a couple of days after that so trying to be conservative. Deborah Weinswig – Citigroup: Last question, Kevin you had said on the third quarter earnings call that you were launching the most aggressive holiday marketing campaign in the company’s history. What did you learn from it?

I think what we learned was mostly from the marketing campaign as well as the research is that as I alluded to with Michael, the consumer is going to have to be very highly motivated to spend. They have in their minds a budget and that budget is smaller than it used to be. They’re not going to open up that budget beyond the total that they have and the decisions they make about where they’re going to get merchandise is certainly about multiple things. We call it everything from delivering value to respecting her time by making sure we have what she wants in stock, in size and in color, to delivering exciting brands and merchandise, all the way to inspiring her with phenomenal marketing. I would say through the fourth quarter and even more so as we go in to spring we think we’re coming to the party on all four of those pillars and delivering on each one of those four things in our stores. I think we’ve learned that in the fourth quarter, we knew it from the research and it’s incorporated in to our strategies for spring.

Ladies and gentlemen this concludes today’s conference call. You may now disconnect.