Wesley S. McDonald - Chief Financial Officer, Principal Accounting Officer and Senior Executive Vice President Kevin Mansell - Chairman, Chief Executive Officer, President and Member of Executive Committee

Deborah L. Weinswig - Citigroup Inc, Research Division Adrianne Shapira - Goldman Sachs Group Inc., Research Division Robert S. Drbul - Barclays Capital, Research Division Paul Swinand - Morningstar Inc., Research Division Michelle L. Clark - Morgan Stanley, Research Division Tracy Kogan - Nomura Securities Co. Ltd., Research Division Matthew R. Boss - JP Morgan Chase & Co, Research Division Jeffrey P. Klinefelter - Piper Jaffray Companies, Research Division Charles X. Grom - Deutsche Bank AG, Research Division Lizabeth Dunn - Macquarie Research

Good morning. My name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kohl's Quarter 1 Conference Call. [Operator Instructions] Certain statements made on this call, including projected financial results, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Kohl's intends forward-looking terminology such as believes, expects, may, will, should, anticipates, plans or similar expressions to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause Kohl's actual results to differ materially from those projected in such forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in Item 1A in Kohl's most recent annual report on Form 10-K and as may be supplemented from time to time in Kohl's other filings with the SEC, all of which are expressly incorporated herein by reference. Also, please note that replays of this call will be available for 30 days, but this recording will not be updated. So if you are listening after May 10, it is possible that the information discussed is no longer current. Thank you. I will now turn the conference over to Wes McDonald, Senior Executive Vice President and Chief Financial Officer. Wesley S. McDonald: Thank you. With me today is Kevin Mansell, Chairman, CEO and President. I'll start off by talking about our financial performance, and then Kevin will walk through some of our merchandising, marketing initiatives and close with some comments, and then I'll give guidance components for the second quarter. Total sales for the quarter increased 1.9% to $4.2 billion. Comp store sales increased 0.2%. Average unit retail increased 4.9% while units per transaction decreased 3.3%. This resulted in an average transaction value increase of 1.6%. Transactions per store were down 1.4%. Kevin will provide more color on our sales by region and line of business in a few minutes. Our credit share was 56% for the quarter, an increase of approximately 270 basis points over the first quarter of 2011. Our gross margin rate for the quarter was 35.9%, 220 basis points lower than the first quarter of last year and below our expectations of a decrease of 160 basis points. Our SG&A expenses decreased 0.2% for the quarter, well below our expectations of a 3.5% increase. SG&A as a percentage of sales leveraged approximately 50 basis points for the quarter. Credit provided the most significant leverage, but we also saw positive results in our store payroll and other store expenses. Moving on to depreciation. Our depreciation expense was $201 million in the first quarter this year versus $191 million in the first quarter of last year. The increase is due to new stores and additional e-commerce fulfillment centers. As a percentage of sales, depreciation was 4.7%, approximately 10 basis points higher than last year. Net interest expense was $82 million this quarter, up $6 million compared to the prior year quarter. The increase is primarily due to the $650 million of long-term debt issued in October 2011. Our income tax rate was 35.5% for the quarter compared to 36.3% in the prior year quarter. The decrease was primarily due to a favorable settlement of state tax audits. Moving down to net income. Net income was $154 million for the current year quarter and $201 million for the first quarter of 2011. Diluted earnings per share were $0.63 this year, down $0.06 from last year. On to the balance sheet and some metrics for your models. We ended the quarter with 1,134 stores. During the quarter, we opened 9 new stores, including 1 relocated store and closed 1 location. Gross square footage at quarter end was 99 million square feet, 3 million higher than April of 2011. Selling square footage increased 2 million to 83 million. We ended the quarter with $1 billion of cash and cash equivalents, a decrease of $640 million from April of 2011. The reduction in cash is primarily due to share repurchases. We have repurchased approximately $2 billion of stock since the first quarter of 2011. Cash equivalents are in money market fund, CDs and commercial paper. Moving on to inventory. We ended the quarter with $3.4 billion worth of inventory, a 7% increase over April 2011. Inventory per store is up 3.7%. Kevin will talk more about inventory management in a few minutes. Moving on to CapEx. CapEx expenditures were $177 million for the first 3 months of 2012, $44 million lower than the first quarter of 2011. The change reflects lower spending on both remodels and new stores and e-commerce fulfillment centers, partially offset by higher technology spending. We opened 9 new stores in both March of last year and March of this year. As a reminder, we are planning to open approximately 10 new stores this fall compared to 31 last fall. We've also reduced our remodel plans from 100 last year to 50 remodels this year, and we remodeled 40 stores in the first quarter. We'll remodel 10 additional stores in the fall. During 2011, we also had a lot of spending related to our second and third e-commerce centers. Spending on our fourth e-commerce center is ramping up right now. AP as a percent of inventory was 47% versus about 44% last year. The increase is primarily due to normalized day turns with our import vendors, as well as an increase in March and April receipts. From a capital structure perspective, we repurchased 6 million shares of our common stock during the quarter and have repurchased almost 71 million shares since reactivating the buyback program in the fourth quarter of 2010. All of these purchases were made under 10b5-1 plans. Weighted average diluted shares were 245 million for the quarter. For your modeling purposes, I would use 241 million diluted shares for the second quarter and 239 million shares for the year. This assumes $250 million in share repurchases in the second quarter at an average price of $50 a share. Earlier this week, our board approved a quarterly dividend of $0.32 per share. The dividend is payable June 27 to shareholders of record at the close of business on June 6. I'll now turn it over to Kevin, who'll provide additional insights in our results.

Thanks, Wes. As Wes mentioned, comparable store sales increased 0.2% in the quarter. From a line of business perspective, Men's, Children's and Accessories outperformed the company average. Men's had strength in casual sportswear, basics, dress shirts and young men's. Children's was led by boys and by girls. Notable performers in Accessories included fashion accessories and handbag, sterling silver and watches. The Women's area was essentially flat. Active and updated sportswear were the strongest categories with low double-digit increases. Footwear was slightly negative despite a low double-digit increase in Women's shoes. Home reported a low single-digit decrease. Strong performers in Home included tabletop, bath and towels, and electrics. From a regional perspective, the cold regions, Mid-Atlantic, Midwest and the Northeast, significantly outperformed the warmer South Central, Southeast and West regions. The Midwest and the Northeast regions reported low single-digit increases. The Southeast and South Central regions reported low single-digit comp sales declines and the West reported a mid-single-digit decline. E-commerce sales increased 34% from first quarter of 2011 to approximately $250 million in sales. On a product front, we launched several new exciting brands in the quarter. Rock and Republic launched in Women's, Men's and Footwear in February. Sales of this premium denim and sportswear brand have significantly exceeded our internal expectations. We also expanded the ELLE and Simply Vera Vera Wang brands into our beauty offering. We're excited about these opportunities that these new expansions bring to our beauty business and the opportunity to grow this underserved business. We are also conducting a sales productivity test in approximately 50 stores in 3 markets, Houston, Atlanta and Salt Lake City. We've expanded our Home selection in these markets. We expect to add 2 additional markets with 20 more stores for Back-to-School. Our plans are to read these tests through the balance of the year. We intend to make changes to our remodels and new stores based on the results of this test and initial plans we have for other areas of the store. Those changes will not take place until 2013. Private and exclusive brand penetration increased 300 basis points over the first quarter of 2011. Approximately 53% of our sales are now in private and exclusive brands. Several of our largest private brands, Croft & Barrow, SO and SONOMA reported strong sales; and Jennifer Lopez, Marc Anthony and Rock and Republic generated higher penetration as did more mature brands such as FILA, Food Network, Lauren Conrad, Mudd and Simply Vera Vera Wang. On the gross margin side, we're obviously very disappointed in our gross margin performance. The difference between our expectations and our results was primarily in the depth of our promotional markdowns as we did provide great value to our customers especially around opening price point private brands. Clearance levels were very similar to our expectations. We do understand better how the customer will react to the lower prices and have reflected that in our gross margin guidance for the second quarter, which we expect to be similar to the first quarter. We would expect gross margin to improve in the fall season but still be down from last year. We are seeing cost decreases in the apparel areas for fall season in the mid-single-digit range, which will help on the gross margin side. On the other hand, in expense management, I'm very pleased with our expense management, again, as we leveraged approximately 50 basis points for the quarter. Our credit business, again, generated significant leverage for the quarter, but we expect this improvement to moderate in the later quarters of the year and in April we annualized our new relationship with Capital One. Substantially all of our operating stores also reported lower costs as a percentage of sale. The strongest improvement was in our store payroll organization as our technology investments continue to drive sustainable efficiencies. Other store controllable costs and fixed expenses were also well managed. Advertising costs did not leverage due to incremental spend to support the new brand launches during the quarter, and we also invested incremental spend on our spring television marketing campaign. In our 2012 guidance we discussed in February, we shared our belief that gaining momentum on the top line would be a very gradual process, and it certainly has been in the first quarter. We've been focused on our value, product and promotion along with providing great customer experience both in-store and online. We do believe that value message is resonating with our customer, and we're priced in line with our major competitors and executing our promotional strategy while providing extra value with discounts for our credit card customers and through Kohl's Cash and buy more save more events for all. We believe our product is now more on trend, and we are focused on narrowing our assortment to ensure we have enough depth in items we believe in. We are happy with the feedback on our spring marketing campaign and expect to continue with that theme through the Back-to-School season. Our progress on sales has been hindered by not having enough inventory units in the stores. We entered the quarter down about 6% in units in the stores and about 9% in the seasonal categories with receipts arriving in late April. During much of the quarter, some of our seasonal categories were down as much as 20%. We plan to be close to flat by the end of the second quarter, which is where we want to be positioned for the fall season. I expect our inventory levels to continue to hinder our sales in this second quarter, and the second quarter sales expectations as a result are similar to our first quarter performance. We will continue to look for ways to be more efficient across the company. Our expense performance in the first quarter was a result of sustainable improvement in the stores and distribution centers, as well as continued strong credit revenue performance. We have a continued rollout of our electronic signing initiative in the next 2 quarters, which should also help our expense performance as well. And with that, I'll turn it back to Wes to provide details on our second quarter earnings guidance. Wesley S. McDonald: Thanks, Kevin. Our second quarter earnings guidance is as follows: Total sales increase of 2% to 3%, a comparable sales increase of flat to 1%. We would expect May to be below the quarter, June to be approximately with the quarter and July to be well above the quarter. Gross margin rate decline of 200 to 250 basis points. SG&A expense should be flat to 1.5%. Depreciation expense of $206 million, interest expense of $80 million, a tax rate of 38%, a share count of 241 million diluted shares and share repurchases of $250 million for the quarter at an average price of approximately $50 a share. Including these estimated share repurchases, we expect earnings per diluted share of $0.96 to $1.02 for the second quarter. Our fiscal 2012 guidance remains the same at $4.75 per diluted share. And with that, we'll be happy to take your questions at this time.

[Operator Instructions] Our first question comes from the line of Deborah Weinswig with Citi. Deborah L. Weinswig - Citigroup Inc, Research Division: So a few questions, as we look out and in terms of being more efficient with spending, can you talk about if there's any changes in your marketing program? Wesley S. McDonald: Marketing?

Yes. I think she's asking about marketing. Wesley S. McDonald: Yes, I mean, our advertising expenses did not leverage in the first quarter. I would not expect them to leverage in the second quarter as well. With more units, we obviously expect to do better on the comp line in the back half of the year, and hopefully at that point, we'll start to leverage. If you recall last year, we had a big launch of Jennifer Lopez and Marc Anthony in the third quarter. That was a -- sort of a unique spend. So we won't spend that kind of money in the third quarter this year. So we should do better in the back half. Deborah L. Weinswig - Citigroup Inc, Research Division: Okay, and then also on the expense side, you talked about doing a great job in terms of store payroll and other store expenses. With store payroll, is that mainly E sign or is there anything else driving that, and then also can you talk about the other stores expenses that were levered? Wesley S. McDonald: I think it was a lot to do with E sign, and we obviously continue to try to be more efficient in the stores and manage payroll as best we can to sales. Other store expenses, we've invested a lot of capital to manage electricity usage and that was down about 4% or 5% for the quarter so that provided some savings. We also saved money in terms of CAM. Obviously, it was a very light snow season that I would expect most retailers to have saved money in as well. But the majority of it was really with store payroll. Deborah L. Weinswig - Citigroup Inc, Research Division: Okay. And then, Kevin, with just some of the changes taking place on the competitive landscape, can you talk about any opportunities you have in terms of gaining share and maybe how that plays out in the back half of this year as you have more inventory?

Well, I mean, I think our big opportunity remains internal, Deb, to be honest with you. There obviously are a lot of changes happening in our industry. But our inability to generate the kind of store-for-store sales success we've had in the past, there's really been a function of us not having the kind of value we need to for our customer and not having the inventory levels in the right categories for the customer. So it's a lot about price, it's a lot about promotion, and it's certainly a lot about products. So I think the reason that we feel so optimistic about the fall and holiday is that we well understand the changes we need to make to our merchandise assortment in terms of communicating our value. And what's happening in the competitive landscape is sort of in the background on that.

Your next question comes from the line of Adrianne Shapira with Goldman Sachs. Adrianne Shapira - Goldman Sachs Group Inc., Research Division: Kevin, I know you're disappointed with the gross margin performance in the first quarter. It sounds like we should expect the same in Q2, but maybe can I shed some light in terms of what learnings you had in terms of what went well, what didn't and what tweaks we should expect to the plan in the second quarter?

Well, I mean, the things that were positive we knew -- we felt we knew that as we brought down our price points, particularly around opening price points our private brands and we illustrated those in our marketing, that we would, in fact, get accelerated unit demand. And that definitely happened. So throughout the quarter, there was a dramatic change in the trajectory that we had, sell-throughs and actual units around those key items. And that was very visible to us in the selling rates across those items. Unfortunately, we just didn't have the kind of depth of inventory to support it, and it didn't, as a result, I think, translate to the top line to the extent that it will as we start to build those inventories more effectively. From a portfolio perspective, we also did well with our new brands. So it's not all about our focus around opening price point, we can provide great value around what we would consider kind of our best brand, sothings like Rock and Republic and Jennifer Lopez or Marc Anthony, which resonated well, in addition. But there's no question that changing the value that we offer to customers is making a difference in how they respond to the product. And that we think, combined with deepening the level and continuing to work on the on-trend nature of what we offer, is going to be a tailwind for us as we get later in the second quarter and then certainly into the third quarter. Wesley S. McDonald: Adrianne, this is Wes. I also think the majority of our gross margin pressure was in the private brand because that's where we took the biggest price reduction. It's also where we have the biggest cost increases when we start to get cost reductions in the back half. Private brands should perform better. We still expect our gross margins to be down in the back half, but nowhere near to the extent they are in the spring. National brands for the quarter kind of were at the same level as what our total company was from a gross margin perspective and exclusive brands by their very nature since they're a little bit less price sensitive and more in our better and best price points, gross margin was down still but significantly less than the company. Adrianne Shapira - Goldman Sachs Group Inc., Research Division: Okay, that's helpful. And just a follow-on to that it sounds like the inventory investments you think is key to help sales growth. Since you ended the quarter with inventory up 7%, how should we be thinking about that inventory to sales? Obviously, it looks like it's going to be outpacing your comp plan in the near term. How do you -- give us the confidence in terms of as you build inventory, how do you mitigate any sort of markdown liability that might come along with sort of a heavier inventory debt? Wesley S. McDonald: Well, I guess from my perspective, you're also starting to see cost reduction, so units might be up, but costs might be down. So your dollar increase in terms of inventory won't be as great. We look at it more on an inventory per store basis versus a overall inventory. So our inventory was up 3.7%. I would expect at the end of the second quarter for it to be somewhere in the mid to high single digits on a per store basis. That will give us enough units we think to do much better. You got to remember last year, we were down significantly in inventory. So if you go back to 2010, we're probably sort of flattish. And it's not going to be across the board. There are certain areas we're going to be investing in like kids definitely reacted very well to price reductions we took in the first quarter. We're going to be very aggressive for Back-to-School on that from a unit perspective. Obviously, that's a big season for the kids business and areas like Missy's updated and contemporary, we need more units. Classic inventories on the Missy side, we won't be as aggressive in. That business is coming back a little bit. It's probably the best quarter we've had in close to 2 years on Missy's classic, but you're not going to see the kind of unit growth in that area that you will on the other 2 I mentioned. So we're trying to be smart about it. It's not going to be across the board, and we're certainly cognizant of the fact that it's a little bit bigger unit increase than we have had in the past, but we're still trying to normalize where we think demand is. Private brands definitely were hurt by the lack of units. We started March in a pretty good shape and then when it got hot, those 2 weeks in the cold-weather regions, we blew through serious amount of units in 2 weeks. And that really dampened our April sales. Most of our seasonal categories for the month of April were down at least 20%. Adrianne Shapira - Goldman Sachs Group Inc., Research Division: That's helpful. And then, Kevin, when you talk about the value product and experience sort of that's where you're focused on to turn things around. Obviously, we're seeing the change on the...

Lost you, Adrianne. [Technical Difficulty]

Your next question comes from the line of Bob Drbul with Barclays. Robert S. Drbul - Barclays Capital, Research Division: All right. Kevin, I guess as you look at the horizon over the next several quarters from a merchandising perspective, where do you see your biggest opportunities? And then from like a new brand opportunity, Rock and Republic seemingly gone very well. How's the opportunities in terms of the availability of new brands or product development from that standpoint?

Sure. I mean, I think as we look at fall and holiday just on a quarterly basis, just getting a little ahead of ourselves, but clearly our biggest opportunity is holiday. And we really underperformed in the fourth quarter last year, and that was, in particular, around categories that were more gift-related across the whole store, of course, but gift-related categories. So that is clearly something we're really focused on being prepared to correct this year. I think second, as Wes kind of mentioned, opening price point was an area that didn't perform. And it was really a function of us not supporting it with the kind of levels of inventory as we navigated through higher costs last year. So our inventories and opening price points being aggressively planned up and from the positive perspective, it's happening as costs are coming down. So we're definitely buying into the right time. There's other things as well, Bob, but I would just say big picture, it's not about the fall and holiday. You say, hey, they're really focused on building their value assortments, which are a lot about opening price point, that 30-plus percent of our business that's our private brands and making it right. And then as they get into the later third quarter and fourth quarter, it really, really focused around a lot of different categories in the store but all around our gift strategy. New brands continue to be important to us, but I think the last year has pointed out pretty clearly that while we need to continue to introduce new brands, and we will, we would expect to have some new announcements for you for the fall season to share with you probably later this quarter and be delivered in the fall. It's almost more important for us to make sure that we have new styles, new colors, new aesthetic in our existing brands and keep those brands fresh because those are all very important to our sales success. Robert S. Drbul - Barclays Capital, Research Division: Okay, and Kevin, when I was in the stores this quarter, it seemed like colored denim trend was a good trend for you and -- but it seemed like you guys might not have had a broad enough assortment. Is that something that you're expanding for the fall? Is that where you see an opportunity?

Yes, I mean, definitely we had colored denim, and we're -- there's no way we had anywhere near enough depth on it. I mean, it was a big mess, and it's definitely an area that as we looked at our competitive set, particularly in the specialty store world, they did a much, much better job of having depths of inventory there. That is clearly something we are correcting, and as we move into Back-to-School, I think, that the expectation that colored denim will be really important to the business, and we'll own it in the kind of depth we want.

Your next question comes from the line of Paul Swinand with Morningstar. Paul Swinand - Morningstar Inc., Research Division: Wanted to ask about that credit uptick, I think you said in the prepared remarks it was up a little over 2%. What's driving that because some of the other retailers have been flat. Is it greater penetration with existing customers? Are you able to get better approvals with the new rules out there or is it actually driving new customers into the store? And how's that all working? If you gave us some color that'd be great. Wesley S. McDonald: I think it's definitely not coming from approval rates. We still have -- with the new regulations, it's more difficult to approve people than it has been in the past. We've made some changes or going to make some changes in June and July from our scorecard perspective, that should give us a little more increase in approval rates a couple of hundred basis points. But it's really just, I think, continued recognition from bank card customers that they can get additional value if they're willing to sign up for a Kohl's card. So that's been really what we've done since we went public back in '92. The 9 years I've been here, the credit share has increased pretty consistently. We have markets that are over 60%. So we still think there's room we have markets that are in the 40s. So we still think there's room there. So it's just a question of time in the market. The older markets tend to be closer to 60, the younger markets tend to be in the 40s. So over time, we would expect that credit rate to continue to increase. Paul Swinand - Morningstar Inc., Research Division: Okay, great. And then just a follow-up on Adrianne's -- I think it was Adrianne who asking about the units. And on a unit basis per store, are you actually down? The dollar inventory is up, I think, you said 7%. Wesley S. McDonald: Yes, units were down 6% per store, and seasonal categories on average were down 9%. But that was a late-breaking development with receipts that came late in the quarter. So like I said in the comments, some of our seasonal categories in March and April, depending on the week, were down 20%. So we're going to be in a better place. We're going to improve each month. We expect to end the quarter on a unit per store basis sort of flattish. We obviously also have one of the things that you guys have to take into account when you're looking at our inventory total growth, we're buying inventory now for 4 EFCs versus basically 2 last year. So that's going to require a little additional inventory to support the 40% growth we expect in E-com.

Your next question comes from the line of Adrianne Shapira with Goldman Sachs. Your next question comes from the line of Michelle Clark with Morgan Stanley. Michelle L. Clark - Morgan Stanley, Research Division: [Audio Gap] and a key reason for the recent comp weakness, how much of recent comp weakness is attributable both to the fact that Penney is having to significantly step up promotional activity as sales are coming much weaker than they expected there?

I'm sorry. We didn't hear the whole...

Your first part of the question cut off, yes... Michelle L. Clark - Morgan Stanley, Research Division: Sorry. Okay, so I'm just trying to get at -- you had mentioned that not having enough value price points and then not having enough units are the key drivers behind the comp weakness for you guys as of late. I'm wondering how much is stepped-up promotional activity at JCPenney weighing on your ability to comp.

It would be hard to answer that question, Michelle, without knowing how their sales were. I mean, being honest about it, if their sales in the first quarter were up over last year, then I think we have to say okay we maybe lost some shares to JCPenney. If their sales in the first quarter are less than last year, then I'm thinking it'd be hard pressed for us to convince ourselves that we lost some share to JCPenney. So without knowing how their business is, it's really difficult to answer that question. So I would imagine whenever they do release sales, you will have better insight and say, hey, if Penney sales were better than last year then maybe part of Kohl's weakness is due to that and you'll be able to make a better judgment. It's impossible for us to make that judgment right now. Michelle L. Clark - Morgan Stanley, Research Division: Okay, but you don't see -- we've noticed significantly stepped-up promotional activity there throughout the quarter, but you don't think that that's a big negative to you guys?

The negative to us is exactly what we've been discussing on the call so far. That's what's driving the lack of sales. Michelle L. Clark - Morgan Stanley, Research Division: Okay, that's helpful. And then, Wes, you had mentioned that credit was a big benefit to SG&A expense in the first quarter. Just wondering if you can give us incremental color there, how much was the stepped up credit income year-over-year, and how should we be thinking about that as we go through the rest of this year? Wesley S. McDonald: I mean, it wasn't the entire beat I would say. Credit was the majority. Stores all in was very close to credit. We had things that were below in terms of millions of dollars, it was around $20 million. I would expect that to not be as good in the rest of the year, but it's still going to be a benefit. We don't have the situation that another competitor talked about where they had a big onetime situation last year where they had a big influx of income and credit. Ours will be more consistent throughout the year.

I mean, credit is a tailwind in the first quarter and the way Wes is describing credit for the rest of the year is built into the guidance we give you. Wesley S. McDonald: Yes, there's no upside to what I just told you. I mean, it went from 3.5% to flat, and I just guided flat to 1.5%. So if you're looking on the upside, it's already built into the guidance. Michelle L. Clark - Morgan Stanley, Research Division: Right. It's included in the guidance, got it. and then you mentioned on the cost comp cadence during the quarter that May would be well below the quarter average and July well above? Can you... Wesley S. McDonald: I didn't say -- I just said May was going to be below, not well below. Michelle L. Clark - Morgan Stanley, Research Division: Okay, below. And then July above. What are the drivers of that? Wesley S. McDonald: Well, the biggest thing was actually last year we thought we missed a lot of business in July. We had a very good June. We ran 2 credit events in June and got eliminated in LPS, and we think we pulled some business forward. That's now normalized, and we have an ad calendar July that hopefully will be a much stronger July. Michelle L. Clark - Morgan Stanley, Research Division: And then the reason for May?

It's just really more, I mean, the whole quarter is really just more about the cadence of what we know position and promotional support to that. And so as we're looking at each month and of course, last year plays into this, as Wes said as well, but as we're looking at each month, there's a much higher confidence that we’ll positioned to drive our sales by the time we get to the later part of the quarter. And we also have more of an opportunity on the year-over-year basis as well.

Your next question comes from the line of Paul Lejuez with Nomura. Tracy Kogan - Nomura Securities Co. Ltd., Research Division: It's Tracy Kogan filling in for Paul. Two questions. The first one for Wes. I was wondering about the performance of the E-com business from a margin perspective. With your EBIT margins down overall, I was wondering if E-com was also down or was it just bricks and mortar? And then secondly, as you anniversary the J. Lo, Marc Anthony launch in the third quarter, I know you said marketing, you did not expect to be up, but just wondering what you have planned to go up against that. Wesley S. McDonald: From an E-com perspective, it was obviously down -- when you're down 220 basis points in gross margin, it's hard to be up in either area, brick and mortar or E-com. As relative to marketing goals, we're still finalizing our marketing plan. My point is we're not going to spend $20 million launching J. Lo and Marc Anthony in the third quarter. We might spend $15 million of that on something else, but I don't think we're going to spend the entire $20 million. Tracy Kogan - Nomura Securities Co. Ltd., Research Division: Any type of launch to go up against that?

We are planning new introduction to the fall season, and I'd expect to be able to share that with you probably middle part of this quarter or so. Newness is important to us. So we're not going to slow down on introducing new brands where they're appropriate and new partnerships. But it's also clear from our sales trajectory in the last 2 quarters, in September of last year, we had the most successful and largest brands launch in the company's history, and we then proceeded to have the worst quarter in the fourth quarter that we've had in many, many years. So you don't want to get so fixated on new brands to drive the business. It's got to be overall breadth of brands that drive the business, and the new brands are just a little bit extra. So there will be a new introduction in the third quarter.

Your next question comes from the line of Matt Boss with JPMorgan. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Any update on a new store prototype or any tweaks to the remodel program to look forward to? Wesley S. McDonald: We kind of talked a little bit about that in the script. We're testing the expansion of Home in those 3 markets we mentioned, Atlanta, Houston and Salt Lake City. So if you guys want to travel down there and check them out, that's part of what we're looking at. We're also looking at other areas of the store where we're not as productive as the overall store. That will be sort of in a test in a couple stores in terms of just trying to figure out how it will look. But you won't see any of that really until 2013. My expectations for 2013 new stores kind of what we've been telling you, 20 new stores until we tell you something different. And then in terms of remodels, depending on the results of the tests, I think we'll probably stick with 50 remodels for next year and get some of the kinks out of what we're trying to do in some of the other areas of the store other than the expansion of Home. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Okay. And then from an SG&A perspective looking past 2012, how should we think about 2013 from an online infrastructure? Where do you stand today and should we be thinking about a ramp-up in SG&A around that longer term? Wesley S. McDonald: No. I think we've kind of guided to SG&A leverage point at 2%. We obviously did much better than that this quarter. I'm not signing up to leverage at a flat comp and a multiyear plan. That'd be pretty difficult. So I would use 2% for your modeling. We're undergoing a very methodical sort of profit improvement project through the entire company. We've split it up into 5 waves. We're through 2 of them. We expect to finish it by the end of the year, and hopefully we'll have some savings that we can bank on in 2013 and '14. Not at liberty to tell you the details, but it's not an insignificant amount. How much we choose to reinvest in driving the top line kind of remains to be seen, but I would just use the 2% for now.

Your next question comes from the line of Jeff Klinefelter with Piper Jaffray. Jeffrey P. Klinefelter - Piper Jaffray Companies, Research Division: Kevin, I just wanted to follow up a little bit on the inventory, Q1 inventory. I mean, in light of -- I think you're suggesting or Wes suggests seasonal inventory down, I think, 20% when you get into April, significantly outperformed in March. Put that in context with the overall business delivered in the first quarter. I mean, clearly there was more demand for seasonal products across the industry. But in hindsight coming in, it came in too low on that inventory. What sort of backup plans do you or did you have for seasonal, how fast can you get back into it, and the same for the colored denim or any other fashion products that are trending well right now.

Well, I mean, I think the conversation around inventory for us is a very important one because it's definitely a key element of why we've not been able to recover on the top line as quickly as we would like. Seasonals product, which is a very important part of our business, as you know, Jeff, because we're definitely a Buy Now Wear Now kind of retailer with our customer, did not recover to the degree that we would like. It's just taken us longer than we would have expected. And even as we did recover and we were able to pull forward, it occurred at the same time as we were driving lower prices on those products. So we went through from a sell-through perspective a lot more units than we expected. And I would -- I think you're right in asking about trends like colored denim. I think generally, we're dissatisfied with the speed to which we're recovering on that. It's going to happen. We feel really good about what we see coming in May and June to prepare us for July, August Back-to-School, and we'll be in a much, much better place. But it is taking a little longer than we would like, and so it's certainly an area of focus for us how do we move more quickly and how do we identify those opportunities more quickly so we can react to them. High level though, we've made a calculated decision as we went into the fourth quarter last year about where we wanted to position our inventory, and that was also true for the first quarter of this year. And we're living with the results of that. Wesley S. McDonald: Yes, I mean, we can't afford to airfreight things. So when you make a decision in January to be more aggressive on price, it's going to take you to June to get the number of units you want to be where you want to be. And that's just the reality of the private brand supply chain and how fast we can get things in. Jeffrey P. Klinefelter - Piper Jaffray Companies, Research Division: Okay, that's helpful. I'm just thinking back on I recall, we went through a cycle like this back in kind of the '03, '04 time period. I think there was a skew toward basics product, basic inventory kind of in your assortments, and I believe you started talking then a lot more about exclusive brands and getting a little more fashion content. It just feels like maybe we're going through another one of those cycles. Is the organization -- has there been a change in the organization the way you're set up to react and respond to these fashion trends as they move faster today?

Yes, I mean, the short answer -- and we don't obviously have enough time on conference calls to go into that kind of detail, but there's no question that the experience we had in the fall holiday season caused us to really rethink the entire buying, planning and product development structure we have. It's not dissimilar to 9 years or so ago where we had to rethink certain parts of our company and support it with more infrastructure, both technology and people. It's similar in thinking to that. There have been a tremendous amount of changes as a result of the experience we've had. And so we've made, relatively for us, massive changes in our buying organization and then, of course, planning kind of parallel as you know buying, so those changes spilled over into planning. And our focus around exclusive brands and our focus on the need to move more quickly and be more trend right has also caused us to make a lot of changes in our product development area as well. So there's pretty significant changes. As I said, Jeff, we can't get into the detail on those on the call, but they're new positions, the company has restructured the pyramids in the company. So we're more efficient and more streamlined and more focused around categories that we think are opportunity businesses for us because everything you're touching on was clearly apparent in our results, and it made it clear to us we needed to act quickly. Wesley S. McDonald: From a CFOs perspective, '03 and '04 was different problem. We had too much ugly woman stuff back then. Now we're chasing units. So it's a good problem for the merchants to have. It's a good problem for the vendors to have. We're trying to buy more products that's on trend. So that's a very inspiring message for the merchants to go out there and get more inventory. They like that. Jeffrey P. Klinefelter - Piper Jaffray Companies, Research Division: I appreciate the perspective. One last thing. Just what's on the prototype, what is motivating that new prototype? Is it kind of learnings from E-commerce, is it competitive environment, anything else you can add to that?

Well, I think it's all of the above certainly. I mean, certainly number one is a recognition that online, which continues to grow at a very high rate across the industry and as you know for Kohl's at a much, much higher rate, is a potential cannibalization of brick-and-mortar retail that sales could be happening. And so it's caused us to just think about the longer term, it's not a short-term thing. It's longer-term thing of, hey, if these rates of growth continue, what does that mean about what should be inside our stores in terms of what we sell to maintain if not return to higher sales per square foot? And so we've looked inside our store and looked at categories that we believe have opportunity for us, either as it relates to a lower share of market compared to our core business, or categories which have been running at a higher rate of growth over the last 5 years or in some cases, both where we have a low-share market even though we've been running at higher rate growth. And all of those things are kind of playing into rethinking how we allocate space and the way our stores are presented. We're fortunate, as you know, Jeff, in that we've historically allocated a significant dollar amount to capital around remodeling our stores. And so what we really are able to do is simply rededicate that capital in a different way. But I think we feel like we have a marvelous opportunity. We don't have to spend more money. We just have to utilize the money we're already spending in a different way. Wesley S. McDonald: Yes, I mean, the goal is really to try to get $10 more square-foot, I mean, deal from $220 to $230. Home is not the highest productive square foot we have in the company, but we think it's opportunity from a line of business perspective. Categories that sell online very well, we think could sell on the store very well. We're taking a little bit of space away from Children's. That's our lowest productivity on a sales per square foot basis. Now part of that is because obviously the AURs in kids are a lot lower than some of the other areas. So we have to be careful that we're driving the overall business of the store and hence, the reason we're testing it through the balance of the year.

And your next question comes from the line of Charles Grom with Deutsche Bank. Charles X. Grom - Deutsche Bank AG, Research Division: Maybe kind of difficult to answer, but when you look at the first quarter as a whole, how much do you think your comp softness was really kind of self-inflicted because of the price investments and because of the lack of inventory, and I guess how much of that do you expect to kind of lead into May and into the second quarter?

I mean, those are -- it's always a hard question to answer because you don't want to ignore competition. I don't want to pretend like it's not real, but I think our judgment is as we look at our performance over the fourth quarter and first quarter than almost all the results that we've got were purely self-inflicted. They were -- we have nobody to blame but ourselves, and we understand that. We understand the things we have to correct to change that. That's not, as I said, to minimize the intensity of the competition and changes that are happening in our industry or other retailers performing and executing better. That's always the backdrop, but I think the vast majority of our disappointment is our own execution. And we've -- as you know, Chuck, tried very hard to take those head on in not just a small way but across the company organizationally and process-wise to drive change. And I think our feeling is that we're seeing the change coming, it's coming, but not surprisingly as we expected. It just is taking long, a long time. And so yes, certainly our guidance that Wes gave you for the second quarter is certainly predicated on the fact that this change is coming slowly, and it's not going to change quickly and as a result, it would be foolish for us to set expectations that we might have difficulty meeting. Charles X. Grom - Deutsche Bank AG, Research Division: Right. And then where you have reduced prices -- you alluded to this I think early in the Q&A in brief. So where you have reduced some of the prices and you do have the inventory, could you maybe give a couple of examples of the elasticity or the response rates that gives you the confidence that when you get into this, the Back-to-School period, your sales will accelerate?

Yes, I mean, 2 -- without giving you a specific item example, I mean, 2 places that it was very clear, very quickly that by adjusting our value, we changed the trajectory of demand. One was Children's apparel, for sure. It was dramatic. It was phenomenal. It was very strong, and the response from the customer was very, very strong. And then secondly, broadly across the store, in a small way in the first half, but in a much bigger way, we will be in the second half, we've focused around what we call great value items or key items, and there not in one particular area. They could be in Home, they could be in Apparel, they could be in Footwear. And on those items, those great value items as we implemented changes to our pricing structure, we saw the sell-through rates accelerate consistently across all the items. So it wasn't a one-business phenomenon. It was very clear that there was a lot of elasticity as we change the prices. So we've got a pretty good solid basis in making the decisions we're making for the fall. Charles X. Grom - Deutsche Bank AG, Research Division: Okay, that's good color. And then just one for you, Wes, maybe. You're keeping the full year at $4.75. It sounds like the former gross profit margin guidance of 70 basis points maybe a little bit worse. Can you give us a little bit of complexion of the outlook for the full year, both on the margin front and also on the buyback? Would you still expect to do $1 billion, or could we see a little bit more? Wesley S. McDonald: Well, I'm not getting into the fall season because most people don't even give guidance anymore. So I'll stick with my second quarter guidance. We're not done the fall plans yet. We're wrapping them up. Margin is going to be down in the fall. Could it be down more than I originally thought in February? Yes. Is SG&A going to be better than I originally thought in February? Yes. So we get paid to get to the guidance in different ways, so we're just going to try to get to the guidance, and give you guys the details as best we can when we're fully informed. Right now, I'm not fully informed about margin for fall. So from that perspective on the buyback, $250 million is probably on the conservative side depending on where the stock is for the quarter. We could buy back more depending on where we are and where interest rates are. We could issue more debt in the third quarter. Modest, we're not talking huge lever, but maybe $250 million or $300 million and use that to buy back stock. We haven't made a decision on that. We'll talk about it in our next board meeting and probably talk to you about it next quarter as to whether or not we're going to do that or not.

I mean, generally I think, Chuck, that the pressure that our lack of sales in the last couple of quarters has put on our share price, the only positive outcome of that is it's put us in a buying position because we have pretty good feeling about the fall and holiday in the future, and we just think that the current trading price is -- it's a buy. [indiscernible] sets the guidance on the buyback, but we're certainly going to be aggressive about it. Charles X. Grom - Deutsche Bank AG, Research Division: Okay. And then if I could sneak one more in. I know you did make some changes in the merchant team sort of diverging the responsibilities up amongst, I think, a few more people. Can you shed a little bit of light on how quickly you think that can lead to better trends in some of the categories where you have been underperforming?

I think the answer is going to be by area. We expect that a new executive team driving our online business who's onboard and up and running. It's going to have an effect to accelerate online sales even further for the fall and holiday. We've named a new executive to run our young female businesses, our Junior and Children's businesses. And I feel really good that she's going to have a major impact for Back-to-School. So the answer is going to depend by area, Chuck, based on when the team started and how quickly the timeline is from a process standpoint to make an impact. Certain areas are going to be faster than others.

Your next question comes from the line of Liz Dunn with Macquarie. Lizabeth Dunn - Macquarie Research: I guess a few questions. Starting with the marketing, you mentioned that you didn't leverage marketing, and I understand that's a -- or advertising, and I understand that's a little bit because of the sales shortfall. But what is it that you're pleased with, is it these ads featuring Dana Torres and that kind of thing, or can you just talk a little bit more about the marketing strategy, and what's leading you to think that that's headed in the right direction?

Sure. As you said, if you strictly look at it on a leverage perspective, we didn't leverage in marketing. We spent -- we increased marketing more than sales increased, but I think our judgment is that's primarily the product and the depth of inventory. When you look at it from a more qualitative standpoint and say, okay, what were we looking to do in the first quarter with marketing? We were looking to change the way our print and direct-mail ads look so that our price points were much more prominent and much -- provided much more clarity to customers around our value. I feel like while we’re not there, we've made tremendous amount of progress there, and it's very visible to me and the ads look different and they feel different and the customer is seeing the price points clearly in the ad, and they're going to see it clearly in the store. When it comes to message behind that, our message really is it's exciting to shop at Kohl's. Our sales are absolutely amazing. And if you shop those sales and watch our value, you're going to have a great feeling and a great experience. And I think that broadcast campaign that you're referring to does a good job of saying that in a very overt way. So from a qualitative perspective, I think we've taken some steps that to me are in line with what our objective was. If you're looking at it strictly on a quantitative standpoint, advertising didn't leverage. I didn't expect it to leverage. I don't think Wes expected it to leverage. Lizabeth Dunn - Macquarie Research: Okay, that's helpful. And then why not at this point just -- and perhaps the answer is there's not any opportunity to do so, but why not reaccelerate store growth? Is that something that's off the table for the foreseeable future?

Well, I don't think -- I mean, we're continuing to open stores, which is probably a bit unusual in our industry to be honest. If you're objective about it and look at our competitors, there's really nobody who continues to open up the numbers of store as we are. So we are continuing to open stores, but I think we also are pretty objective about this and we're saying, we have some issues to solve internally. We need to focus most of our attention around improving the metrics of our business. And once we feel better about that, we can produce results not just talk about it, then we'd be in a better place to consider new opportunities to grow. Wesley S. McDonald: Yes, and we're not -- I mean, to be totally honest, we're not happy with the performance of our new stores in the last few years. And when we opened them in the recession, they're not hitting our pro forma because the economy is not where it was when we developed the estimates. And in a lot of cases in some of the mild and hot markets where there are housing issues, housing growth stops. So we're not getting the kind of lift that we normally would get as the trade area matures because there's still open lots there. So from that perspective, I think 20 stores a year is what I would use going forward. If we start to do better and our results are better, we certainly could accelerate that.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.