Statements made on this call including projected financial results are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such forward-looking statements. Such risks and uncertainties includes those that are described in item 1(a) in Kohl’s 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will not be updated so if you are listening after February 28, it is possible that the information discussed is no longer current. At this time, I would like to welcome everyone to the 2007 Q4 Kohl’s earnings release conference call. (Operator Instructions) Mr. McDonald, you may begin your conference.

Thank you. With me today is Larry Montgomery, Chairman and CEO; Kevin Mansell, President, and myself. I’ll start off reviewing the financial performance of the company. Kevin will make some remarks about our marketing, merchandising and inventory management initiatives, Larry will conclude with our growth plans and our earnings plan. Sales for the fourth quarter were approximately $5.5 billion this year versus $5.4 billion last year, up 0.7%. For the full year sales were $16.5 billion this year versus $15.6 billion last year, an increase of 5.6%. As a reminder, fiscal January 2007 was a five-week month while fiscal January 2008 was a four-week month. This additional week contributed approximately $200 million in sales. Our comparable sales results have been adjusted for this extra week as a result to compare the results for the period ended February 2, 2008 and January 27, 2007. Comp sales for the quarter decreased 4% reflecting decreases in average transaction value of 1.3% and transactions per store of 2.7%. Our full year comp decreased 0.8% which was the result of an increase in average transaction values of 0.6% and a decrease in transactions per store of 1.4%. The northeast region generated the strongest comp sales for both the quarter and year-to-date. From a line of business perspective, accessories led the company for the quarter and for the year. Both footwear and men’s had positive comp sales increases for the year. Our credit share was 43.3% for the quarter and 43.2% for the year. This reflects an increase of approximately 240 basis points over the prior year quarter and 185 basis points over the prior year. Moving on to gross margin, our gross margin rate for the quarter was 34.3%, down approximately 110 basis points from last year. For the year, our gross margin rate increased…

Thanks, Wes. As Wes mentioned, comparable sales decreased 4% for the quarter with all lines of business reporting a decrease in comparable sales. Accounting for the shift in the calendar, our comparable sales decrease was 1.2%. Accessories led the company for the quarter and the year with strength in beauty and jewelry, both of which had positive comp store increases. Men’s and footwear outperformed the company for both the quarter and the year, while women’s and home trailed the company in both periods. Children’s trend to the company improved substantially in the fourth quarter however finished the year still trailing the company. We feel it’s prudent to plan both our sales and therefore our receipts and inventory very conservatively at this time, considering the uncertainty in the environment. As a result and given our run rate in the fourth quarter, our comp expectations for the year have been set at flat to down 3%. We expect the first quarter to be the most difficult, given the comparisons to last year and are planning comps down 3% to 5% in this period. By month in the quarter February should be similar to the quarter; March should be worse; and April should be better than the quarter. Moving on to merchandise initiatives, throughout 2007 we continued to see positive response from both our existing and new customers to our new brand strategies. As a result, we’re more confident than ever that our long-term plan that focuses a great deal of attention on these new brands as growth vehicles is even more justified. We saw very broad acceptance of all three of our new brand introductions in 2007. Simply Vera, Vera Wang; Elle; and Food Network. They increased our share of wallet with our existing customer and based on results in our credit…

Thanks, Kevin. We opened 112 stores in 2007: seven in March, ten in April, 80 in October, and 15 in November. We currently operate 929 stores in 47 states. In 2008 we expect to open approximately 70 to 75 stores; 28 in spring and the balance in fall, including our thousandth store. Also in the fall is our entry with eight stores into the Miami-Ft. Lauderdale major metro. We will also open a new distribution center in Ottawa, Illinois, to support our store growth. We’ll utilize our strong financial position to continue to expand in new and existing markets in order to grow market share in a difficult environment. 2007 proved to be a difficult year for most retailers and Kohl’s was no exception. Although we achieved record sales for our 16th consecutive year as a public company, our earnings performance was disappointing relative to our expectations entering the year. Kohl’s continues to be financially strong. Our sales per selling square foot of $250 is amongst the highest in the industry. Our operating margin of 11% in 2007 is industry leading. Our capital structure is well-positioned to continue to support our expansion plans. Internally generated cash flows will continue to be the primary source of the funding of our future growth and will provide liquidity in tough economic times. We expect free cash flow as defined by cash flow from operations less capital expenditures to be in the range of $300 million to $500 million in 2008. We expect 2008 to be a challenging year from a macroeconomic perspective and we’re planning conservatively our sales expectations, inventory levels, and expenses. We will continue to invest the necessary resources to ensure our profitable growth over the long run through investments in people and technology and we’ll continue to execute toward our long range plans. With that let me share with you our guidance for fiscal 2008 and the first quarter of the year. For the year we would expect total sales to increase 5% to 8%; comp store sales of flat to negative 3%; gross margin flat to up 20 basis points; we expect SG&A to increase 9% to 10%. Wes already gave you the guidance for the other lines on the P&L. This would result in earnings per diluted share of $3.15 to $3.50 for the year. For the first quarter we would expect a total sales increase of 4% to 6% and comp store sales of negative 5% to negative 3% and a gross margin decrease of 20 to 30 basis points. We would expect SG&A increase of 9% to 10% over last year and this would result in earnings per diluted share of $0.50 to $0.54 in the first quarter. This guidance does not reflect any additional share repurchase. With that we’d be happy to take some questions.

Your first question comes from the line of Christine Augustine - Bear Stearns.

Good afternoon, everybody. Thanks for taking my question. Kevin, I was wondering if you might discuss your outlook for women’s apparel in 2008? What you’re see with the overall product cycle? Are you seeing any signs of life? Are you getting any sort of early read on spring? It’s been a very tough category across channels of distribution, so I’m just wondering what you’re outlook is there?

I think overall we’ve got a positive outlook on women’s. It pretty much continues as we discussed in ‘07, Christine, that the new brand launches and the lifestyle brands are performing exceptionally well so whether it’s Simply Vera, Vera Wang brand or the Elle brand, our designer brands, our Chaps brand in particular, those brands are all doing exceptionally well. The core issue in women’s continues to be the more classic customer, traditional customer, and that category is pulling those sales down in total. So women’s didn’t perform substantially different than the company for the year.

What kind of inflationary pressures are you seeing in your cost of goods sold because of what’s happening in China?

The short answer honestly is very little to none. As we looked at our third quarter purchases overseas, primarily our year over year costs are essentially flat. I think you have got a couple of things going on. Clearly demand in the U.S. is lower. [inaudible] Secondarily, even with our conservative plans, of course, we’re buying more and our percent business on private and exclusive is going up, so that’s helping from how more that we’re buying. The third thing is sourcing, I think being in a more vocal sourcing entity is helping a lot, so there’s a lot of growth in countries like Vietnam and India that are offsetting any price pressure we have in China.

Your next question comes from Liz Dunn - Thomas Weisel.

First what’s behind the cut in square footage growth? Is it just you are looking at deals more stringently? Is there any issue related to real estate availability or is it to preserve free cash flow?

We’re just looking at the economic environment and saying, we think it behooves us to be a little cautious at this time and we think 70 to 75 is a pretty good number. We’re not changing our long range number. There is no lack of potential sites for us though.

The follow-up question was related to February. I know you said it’s running between 3% and 5%. Are you able to provide us any sort of insight as to how the month has trended? Some retailers are mentioning a pickup at the end of the month. Have you seen that?

That’s what next week is for to talk about our monthly sales. We’re not going to get into that on this call. I’ll be happy to spend a lot of time with you guys talking about it next Thursday.

Your next question comes from the line of Adrianne Shapira - Goldman Sachs.

Wes, given the fact that CapEx is coming down and it still looks like there’s some left on your authorization, you had mentioned the guidance doesn’t incorporate any additional buyback. What should we be reading into that?

That’s what we normally do. We don’t include earnings guidance with additional share repurchases and we update you on a quarterly basis on how much we buy back during the quarter. Obviously with the increase in cash flow this year we would have more flexibility to buy back more shares, but we don’t like to include it in the guidance.

But there’s no change in appetite or prioritization of buybacks?

No.

Larry, just on the 70 to 75 stores opening, should we think of that as a new run rate?

I think it’s too early to say it’s a new run rate. I’d like to see how the year shakes out here. It’s been consumers getting worked over a little bit. We’d just like to see how that settles out. We’ve got more than enough sites and trade areas that we want to go into so it’s just a matter of when we start to ramp up again. I think we’ll update you at our investor conference every year as to what we see that looking like.

I think our expectations also are that the real estate deals will improve over deal.

Wes, your ending share count for the quarter?

312.4.

Kevin, the comp guidance intra quarter you had mentioned March we should expect lower than the down 3% to 5% for Q1 overall. With an early Easter, how should we be thinking about that? I would have thought that would benefit March?

As we’ve looked at it to historically what happens is, Adrianne, that the shorter lead time going into Easter just creates a shorter selling window, particularly on things that are more weather sensitive and then naturally of course you lose the day itself, so the combination of those two things we think will impact March sales to a greater degree and we’d expect them to be worse in the quarter in total.

Your next question comes from David Glick - Buckingham Research.

Just following up on some commentary on the categories, you addressed the women’s business. Home is one of the other softer areas. I am just wondering if you can comment on the prospects of improvement in that business and where the pockets of strength and weakness are? Secondly, are you seeing any slowdown in the accessory business or is that still an area of strength for you as you head into in the new year?

On home, overall it was weak; I would say throughout the back half. I think frankly and honestly part of that in our case might be that there has been a period quite a bit before when I think a lot of others were [inaudible] talking about this home, and for a lot of reasons our home business is continuing to grow. So I think to some extent we were up against a successful period when others weren’t. But also I think we’re being impacted like everybody else in home. From a category perspective there isn’t any particular category I would call out that’s much worse than another. From a brand perspective, almost the same exact thing is true. The new initiatives like Food Network line was exceptionally strong; linens, Simply Vera, Vera Wang was very positive, Chaps was positive, but the core basic categories had a tough holiday. On accessories, the other part of your question, that’s been our best business. Jewelry has been thriving; we had a really positive year in jewelry. We had good performance in beauty as well in the overall accessory category and I would expect that would continue going into 2008.

How about the handbag category? Is that a strength or a weakness for you? Any developments there?

Handbags have definitely been positive as well. The accessories throughout as a category and a business line has been positive throughout the year and was positive in the third and fourth quarter as well.

Back to home for one last question. Are you seeing any unusual costs, inflation pressure there in that business, on the hard goods side?

I think your earlier question about pricing overall is definitely accurate. In the home itself and particularly in categories like cookware, those kinds of 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 really pretty flat the last year.

Is cookware another category that’s facing pressure?

Honestly, that’s probably the biggest single one would be the basic kitchen category.

Your next question comes from the line of Dan Binder - Jefferies.

Credit penetration continues to rise. I’m curious, are you seeing any kind of 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?

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.

With that in mind, do you think the credit penetration will slow a little bit this year?

No, I think the credit penetration will continue to increase. As you guys probably know, as we enter new markets it takes a while to build the credit penetration. I also think the fact that our customers seem to be looking for value and really the credit card, the way we operate it, is very much a loyalty-based program. Once they get an idea of just the math of benefits that they can have from a credit card holder, I think it’s going to actually increase. That’s what we’ve seen this year. The increase was pretty dramatic.

Some retailers have more exposure than others in terms of the profit sharing agreements. They enjoy more of the upside when the yields are up in the portfolios and suffer more the downside when they decline. Can you broadly describe what kind of exposure you have through any profit sharing agreements with a third party?

Sure. 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%.

Your next question comes from Dana Telsey - Telsey Advisory Group.

Can you please give us a little more color about the new customer acquisition that you had mentioned? What’s the profile, how is she different from your average customer? Any update on sourcing costs and initial markup and just product costs in terms of what you’re seeing? Lastly, just any update on your store performance.

I’ll take the first couple and Wes can take the other one. The new customer just in broad terms I think what we’ve seen is in our new launches which have generally been in better and best price points and generally been in more updated and contemporary styling have attracted a more affluent customer. We see that in the credit card portfolio as we see new accounts open, the percentage of those new accounts that include purchases of some of these new brands, particularly the lifestyle brands, are running at a higher rate than our core customer. So we’re pretty confident about that. From a product costing, as I said a little bit earlier, that’s been very consistent as it relates to apparel. I think for a good nine months to a year we have had really hearing and 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 I think manufacturers are realizing that they simply can’t pass on some of those increases they’d like to. I think the fact that we are growing rapidly in other countries, I use Vietnam and India as examples of that. And then 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 I think puts us in a position where we can negotiate a little better. Finally we have invested a lot in the last two years into product development and building our organization, and I think that’s probably helping us with the sourcing and development side. Wes, do you want to take the other?

Sure. In terms of new stores, 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. Some of the stores in some of those states I mentioned regarding the credit question have been pretty tough like California. 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.

Your next question comes from the line of Bob Drbul - Lehman Brothers.

Kevin, I was wondering if you could maybe size up a little bit some of your private brands and exclusive brands if you’d share that with us? I’m curious in terms of how you’re planning the Chaps business, especially in the first quarter for 2008 and with the competitive launch of American Living coming.

We try to stay away from getting into volume levels by brand because from a competitive perspective it doesn’t make a lot of sense. On a scale basis we had about a 300 basis point increase in private and exclusive brands as a percent of our total business so it reached about 39% of our total business in 2008. Most of that growth came on the exclusive brand side; not surprisingly given the number of new introductions that we had and the number of new introductions we had in the year or two before that which are kind of comping almost like a new store. So we would expect as we said in the margin conversation that’s going to continue to help propel our merchandise margin and I think it’s turning into a real positive for us. There’s a lot of upside on many of those new brands and we’re launching several new brands this year as well. On Chaps, 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. I think we’ve taken a really hard look at our positioning from a price point perspective compared to our competition and we feel like we’re giving spectacular value for really high quality merchandise from a great sourcing company. We feel like we’re really well-positioned to win. So 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.

A question for Wes. On the SG&A as you look to the 2008 planning period, are there opportunities for any additional SG&A savings or flexibility as you plan in year?

Well, there’s obviously some opportunities. The guidance we gave would indicate we think we can leverage between a 1% and 2% comp which is a little bit better than we’ve done in the past. We’d certainly not like to use the bonus line as an opportunity for leverage next year. I think a lot of it is going to depend on what the cost of energy-related things are. We continue to do a very good job in the stores of managing payroll, deflect it down with sales, but we’re not going to do anything to hurt the customer experience and that’s really foremost in our minds as we’re looking for a place to cut expenses.

One other thing from the perspective of savings, the whole effort that we’ve had to lower our inventory levels and to reduce inventory in the store and reduce receipt is a big savings in store payroll because stores are not processing as many units, they don’t own as many units, and we’re not taking as many units to clearance and all of that translates into dollars that are operational dollars that don’t really do much for customer service so I think we think that’s a big positive, the positioning we have in our inventory and the approach we have taken with the inventory management.

Your final question comes from 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?

Yes.

You were talking a little bit about the credit trends. Can you give a little more color on what is being seen in the portfolio in terms of bad debt and delinquencies?

As I mentioned, 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%.

Has that been trending up?

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.

Okay, great.

All right, thank you very much.