Kohl's Corp. (NYSE:KSS) Q4 2015 Earnings Conference Call - Preliminary Transcript

Feb 25, 2016 • 08:30 am ET


Kohl's Corp. (NYSE:KSS) Q4 2015 Earnings Conference Call - Preliminary Transcript


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Wesley S. McDonald

category in both periods. On a regional basis, the West region was the strongest for both the quarter and the year, while the Mid-Atlantic and South Central were the most difficult regions. Gross margin was challenging for the quarter, down approximately 80 basis points. The decrease was driven by higher promotional markdowns during the holiday season as well as an increase in shipping cost versus last year, driven by a 30% increase in digital orders.

The effect of the increased penetration of the national brand was as expected as penetration grew to 58% for the quarter and 52% in the year. The growth in penetration was similar for both the quarter and the year. Gross margin was flat for the first three quarters of the year. However, gross margin for the year decreased 27 basis points to 36.1% of sales due to the fourth quarter performance, which was lower than our guidance for the year of flat to up 20 basis points. SG&A dollars increased $60 million to $1.3 billion for the quarter. As a percentage of sales, SG&A deleveraged 80 basis points. As expected, marketing expenses deleveraged as we invested heavily to drive sales. Many of those expenditures will not be repeated in 2016.

Store payroll also deleveraged due to ongoing wage pressure and omnichannel support and ship-from-store and buy online, pick up in store. During the fourth quarter, almost 30% of our digital sales units were either shipped from or picked up in our stores, more than two times last year's penetration rate. EFCs and IT also deleveraged. Store expenses, distribution centers for our brick-and-mortar stores, corporate and credit, all leveraged. For the year, SG&A expenses were $4.5 billion, an increase of 2.3% over 2014, which was consistent with our guidance of a 1.5% to 2.5% increase. As a percentage of sales, SG&A deleveraged 30 basis points. Store payroll, corporate, e-commerce fulfillment centers and IT deleveraged for the year, while marketing, credit and distribution centers for our brick-and-mortar stores all leveraged. Depreciation expense was $239 million for the quarter. For the year, depreciation was $934 million, generally in line with our guidance of $940 million.

Depreciation increased in both periods, primarily due to higher IT amortization. Interest expense decreased $5 million to $79 million for the quarter and decreased $13 million to $327 million for the year. As a reminder, our original guidance was $335 million. The decreases are due to favorable interest rates achieved during our $1.1 billion debt refinancing earlier in the year. Our income tax rate was 35.9% for the quarter and 36.3% for the year. The tax rate increased 60 basis points during both periods as the prior-year periods included some favorable tax audit settlements. This was versus our guidance of 37% for the fiscal year. For the quarter, net income was $296 million and diluted earnings per share were $1.58. Excluding $169 million of debt extinguishment losses that were recorded earlier in the year, net income was $781 million for the year and