Larry Montgomery: In the home itself and particularly in categories like cookware, those categories are definitely against inflationary pressure, but when you look at that as a mix of our overall business, it’s a very small portion. When you look at the big picture, our pricing year over year was flat over the last year.
Dan Binder (Jefferies): The credit penetration continues to rise. Are you seeing any limitations on the ability to extend credit with default rates rising in the credit card portfolios these days or is there any real impact there that you expect in the coming year?
Wes McDonald: We continue to monitor it closely. We have seen some deterioration in approval rates in areas that have been affected by the housing bubble primarily in California, Arizona, Nevada, and Florida. Texas has also seen deterioration. We haven’t changed the parameters, we are certainly not going to open the lines; we’re also monitoring people’s credit lines extensively to make sure if they need to be downsized we are downsizing them, but I don’t expect credit to be an issue for us in 2008.
Dan Binder (Jefferies): Some retailers have more exposure than others in terms of the profit sharing agreements. Can you broadly describe what exposure you have through any profit sharing agreements with a third party?
Larry Montgomery: We have an agreement with Chase to share in the net profitability so finance charges, late fees, other ancillary revenues plus bad debt expense. The onus is on us to spend money on marketing and customer service and that’s all 100% on us but we continue to look at our net revenue and our yield percentages are all higher than we planned and certainly higher than when we ran the credit card portfolio ourselves. Our bad debt as a percent of average AR is very, very low; less than 4%.
Dana Telsey (Telsey Advisory Group): Can you provide an update on sourcing costs and initial markup and product costs in terms of what you’re seeing?
Kevin Mansell: The product costing has been very consistent as it relates to apparel. For a good nine months to a year, we have had a lot of pressure coming back from overseas manufacturers on increasing costs in the supply chain. A lot of that has been China-based. In reality, as it relates to delivery product as we look at fall 2008, we’re not seeing year over year cost increases. The things that are mitigating it are lower demand coming from the U.S. which manufacturers are realizing that they simply can’t pass on some of those increases they’d like to. We are growing rapidly in other countries like Vietnam and India. The fact that the combination of our growth of private and exclusive brand penetration and the overall growth of the company means we’re buying more overseas anyway. We’re one of the few companies to be doing so. That puts us in a position where we can negotiate a little better. We have invested a lot in the last two years into product development and building our organization, and that’s probably helping us with the sourcing and development side.
Dana Telsey (Telsey Advisory Group): Could you provide an update on your store performance?
Wes McDonald: In hindsight, it wasn’t the best year to open the most stores you’ve ever opened given the economic environment as back-loaded as they were. Having said that, I think we’re pleased with the openings. Our productivity overall has been in the mid-60s. That’s lower than normal primarily due to the fact that we’re opening a significant number of small stores this year. We opened 27 small stores and their productivity is about 55% of an existing average store. That’s bringing the number down a little bit.
Bob Drbul (Lehman Brothers): How are you planning the Chaps business, especially in the first quarter for 2008 and with the competitive launch of American Living coming?
Kevin Mansell: We’re very positive on Chaps. Chaps had a very good year at Kohl’s. They had a very good solid fourth quarter, particularly in the men’s world they did, and I’m expecting that they’re going to get off to a good start in the first quarter of this year. That’s a brand that has been around for a lot of years and the customer knows and recognizes it and knows the value of it. We’ve taken a hard look at our positioning from a price point perspective compared to our competition and we feel like we’re giving spectacular value for high quality merchandise from a great sourcing company. We’re well-positioned to win. The customer will decide that, but we’re certainly taking the viewpoint that Chaps is going to growth a lot again in 2008 at Kohl’s.
Dana Cohen (Banc of America Securities): You touched on the fact that the traditional lines are still the weaker part of women’s. Are the contemporary lines in total still trending positive?
Kevin Mansell: Yes.
Dana Cohen (Banc of America Securities): You were talking a little bit about the credit trends. Can you comment on what is being seen in the portfolio in terms of bad debt and delinquencies?
Wes McDonald: Our bad debt as a percent of AR is less than 4% which if you look over at some of our competitors, it’s probably 50%.
Dana Cohen (Banc of America Securities): Has that been trending up?
Wes McDonald: It has been trending up over the last few months but we’ve tried to focus on revenue per account so with the bad debt going up so has revenue from each account. That’s obviously greater than the rise in the bad debt expense.
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