This summary is based on the second quarter fiscal 2006 earnings call conducted by Kohl’s Corp. (KSS: chart) on August 10, 2006.
Key Investors Issues
- During the quarter, EPS was 69 cents, up about 28% over the prior year quarter.
- Quarterly sales were $3.3 billion compared to $2.9 billion in the year ago period.
- For the first half of 2006, earnings per share were $1.17, on revenue of $6.5 billion.
Second Quarter Fiscal 2006 Financial Highlights
Net income for the second quarter was about $232 million, up approximately 24% over last year.
The EPS was 69 cents for the quarter, which is up about 28% over the last year. This compares to the firm’s original guidance of 61 cents to 64 cents per share.
For the second quarter, sales were approximately $3.3 billion compared to $2.9 billion last year, up 14%.
The comparable store sales increased 5.5%. The increase in same store sales was a result of an increase of 3.3% in the number of transactions per store and an increase in average transaction value of 2.2%.
All the regions delivered same store sales increases, both for the quarter and the entire spring season. The southwest region posted the strongest same store sales for both the quarter and year-to-date, achieving same store sales in excess of 9% for both periods. The Midwest, which is the firm’s most mature region, posted a same store sales increase in the two to 3% range for both the quarter and the season.
The firm is very pleased with the consistency of performance shown across all six lines of business for the quarter. All six areas had at least a mid single digit same store sales growth for the season.
- Home continues to show strength in bedding, bath and housewares.
- Men''s continues strong across the board performance in both dress and casual. Within men''s, the young men''s area had a very strong quarter and season.
- Kohl’s children''s business had a very good quarter as the customer responded to its merchandise content in all age groups.
- In women''s, the company’s updated and contemporary businesses, active fitness and special sizes, experienced the most significant same store sales increases.
- The accessory business was led by fine and fashion jewelry.
- The footwear business showed particular strength in men''s footwear.
The second quarter had strong sales in seasonal categories such as teas, tanks, polos and capris as the firm joined the benefits of its inventory strategies and having more frequent flows to replenish regions affected differently by weather. Basics in men''s and children''s and women''s also performed well across the country. The company continues to be pleased with the performance of its new initiatives in the spring season, including Chaps and West End for its classic customer and AB Studio for its contemporary customer.
The company continued to see improvement in gross margin rates.
For the second quarter gross margin was 37.6% versus 37% last year, an improvement of 60 basis points.
During the quarter, SG&A was $758 million compared to $672 last year.
The management continues to be really pleased with the leverage that it is getting on its sales. For the quarter, SG&A expenses leveraged about 24 basis points.
- Depreciation and amortization, during the quarter, was $96 million, up about 16% over last year.
- Preopening expenses in the quarter was $8.1 million this year compared to $4.1 million last year. Second quarter includes expenses related to the 68 stores that are going to open during the fall season. The company continues to expect average preopening expenses for store of about $700,000 per store this year.
The operating income for the quarter was about $375 million compared to $309 million last year.
This represents a growth of approximately 21% over last year. Operating margin for the quarter was up 70 basis points over last year.
- The net interest expense was about $6 million compared to $16 million last year. Obviously the reduction in interest expense versus last year is the result of the interest income that the firm has earned on the investment of the proceeds from the sale of its credit card receivables.
- The income tax rate for the quarter was 37.1%. This was due to the effect of interest earned on primarily tax-free investments as a result of the proceeds of the credit card receivables.
- The company purchased approximately 18.4 million shares of stock during the quarter. The average price for the shares repurchased was $55.72. To this point of the $2 billion share repurchase program, the firm has now repurchased $1.1 billion.
- Kohl’s currently operates 749 stores compared to 670 at this time last year. At the end of the quarter, gross selling square footage was 67318, an increase of about 11.5%. Selling square footage was 57,860, about the same increase.
