The Kohl’s, Q3 2009 Earnings Call was held Thursday morning, November 12, 2009 8:30. The call included the following insights on their Private and Exclusive Brands. Kohl’s has consistently used these brands to buy credibility and create compelling reasons for consumers to shop. The strategy appears to be working.
On the merchandise front, in October we launched LC Lauren Conrad, our exclusive partnership with Lauren Conrad, at approximately 300 Kohl’s stores and on kohls.com. As a result of the phenomenal response to this new contemporary lifestyle brand, we have accelerated our plans to roll out the brand to all stores. LC Lauren Conrad will be rolled out to all stores nationwide in March 2010. Our original plans did not call for rollout until the fall of 2010.
Our exclusive mud brand launched in juniors and girl’s just in time for back to school and also far exceeded our plans. Consumers have embraced the brands that bridge between our opening price point, So Brand, and our best price point, Candy’s Brand. We also continue to beat our plans on our spring launch of Dana Buckman, which is in women’s apparel, intimate, accessories, and footwear, and we continue to enjoy success with Chap’s at the same time.
The success of our recent launches, as well as our other exclusive and private brands, continue to drive increased penetration of all of these brands. Exclusive and private brand sales as a percentage of total sales increased approximately 270 basis points to 45% of sales for the quarter.
On the inventory front, as we indicated earlier, average inventory per store is approximately 3% lower than last year with clearance inventories down over 40% per store. Our cycle time process improvements in fashion categories and a focus on replenishment of basics have allowed us to consistently flow receipts with sales and to improve our inventory effectiveness by merchandise area and store location. We have been able to pull forward receipts to support our better-than-planned sales that we achieved in the third quarter. As a result, our AP to inventory ratio reached 54.4%, one of the highest in recent years, indicating the freshness of our inventories entering the Christmas selling season.
We would expect our inventory per store at the end of the fourth quarter to be flat to last year on a per store basis.
For the fourth quarter, we would expect gross margin to be up 50 to 60 basis points over last year, similar to our quarter and our year-to-date performance. This guidance is influenced by several factors.
On the positive side, we believe that our strong inventory management process improvements and our higher penetration of private and exclusive brands, will continue to aid our merchandise margins. At the same time, all of our primary research and our own response rates on events have continued to indicate the consumer is extremely focused on stretching their dollar, making their budget go further, and seeking optimum value.