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 include those that are described in Item 1A in Kohl's annual report on Form 10-K and this 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 this replay of this call will be available for 30 days but this recording will not be updated. So if you are listening after September 13th, it is possible that the information discussed is no longer current. Good morning. My name is Carrie and I will be your conference operator today. At this time, I would like to welcome everyone to Kohl's second quarter 2009 earnings release conference call. (Operator Instructions) I would now like to turn the call over to Mr. Wes McDonald, Chief Financial Officer. Mr. McDonald, you may begin.

Thank you. With me today is Larry Montgomery, Chairman; and Kevin Mansell, President and CEO. Sales for the second quarter were approximately $3.8 billion, up 2.2% from last year. Year-to-date, total sales increased 1.3% to $7.4 billion. Comp sales for the quarter decreased 2.3%. Transactions per store increased 0.3% for the quarter. Average transaction value decreased 2.6% as a 1.9% increase in average unit retail is more than offset by a 4.5% decrease in units per transaction. Year-to-date, comp sales decreased 3.2%. Transactions per store decreased 1.1% year-to-date. Average transaction value was down 2.1% as a 3.9% increase in average unit retail was offset by a 6% reduction in units per transaction. Our credit share was 47% for the quarter, up 370 basis points over the prior year quarter. Year-to-date, our credit share was 46%, a 270 basis point improvement over last year. Turning to gross margin, our gross margin rate for the quarter was 40%, almost up approximately 40 basis points from last year. Year-to-date, our gross margin rate has increased approximately 60 basis points to 38.8%. The increase reflects continued improvement in inventory management, lower clearance levels, and higher penetration of private and exclusive brands. We would expect gross margin increase 10 to 20 basis points over last year in the third quarter and 20 to 30 basis points in the fourth quarter over last year. SG&A of $966 million, up about 4% over last year, SG&A was also up 4% for the year-to-date period, consistent with our guidance. Credit, distribution centers, and IT expenses leveraged in both periods. Store payroll also leveraged for the second quarter and advertising leveraged for the year-to-date period. We would expect SG&A expenses to increase 3% to 4% in the third and fourth quarters, less than our store growth of 5.5% for…

Thanks, Wes. As Wes mentioned, comp sales decreased 2.3% for the quarter, with accessories, home, and footwear achieving positive comparable sales increases. Accessories reported the strongest performance for the company, led by sterling silver and fashion jewelry, as well as handbags. In home, small electrics, bedding, and food prep performed best. Footwear was led by children’s footwear and athletic shoes. Men’s was led by active, basics, and casual sportswear. Children’s was driven by infants and toddlers and boy’s, and in women’s, intimate and updated sportswear were the strongest categories. By region, the Southwest was the strongest region with a high single digit comp store increase and the Southeast remained the most difficult. The remainder of the regions had mid-single-digit comp store decreases. Given our trend in the first half of the year, we have adjusted our plans for the third quarter to a comp decrease of 3, negative 3% to negative 5%. By month, August should be in the middle of the range; September should be toward the worst end of the range; and October should be at the better end of that range. Those expectations are primarily driven by last year comparison levels and our October grand opening of the former Mervyn’s stores. From a merchandise update, we’ve been able to launch our new Mud brand just in time for back to school. The addition of Mud to our portfolio of world class brands furthers our mission to offer customers quality, exclusive brands at exceptional value. We are supporting the launch with an integrated marketing campaign utilizing tab, broadcast, direct mail, e-mail, and Kohls.com, as well as in-store strike points and graphics. Our partnership with Candy’s and Britney Spears is also especially important in the back-to-school season. The combination of Candy’s, Mud, our Avril Lavigne initiative, and our own…

(Operator Instructions) Your first question will come from the line of Adrianne Shapira of Goldman Sachs.

Kevin, maybe just focusing a bit on gross margin -- obviously tremendous performance in the first half and if you can kind of walk us through the three buckets of that performance, the inventory management, lower clearance levels, and higher private brands, if you were to prioritize what drove the up-side and then perhaps help us think about as you kind of somewhat raise guidance in the back half as it relates to margins, where do you see the most opportunity coming from?

I think it was a balance, actually. We kind of think about the margin improvement all as inventory management because the decisions we made to improve the opportunity for a customer to choose only a Kohl's brand in an increasing way. The inventory management has an impact not only on our regular priced selling and the resulting mix but also the transitional level of inventory we have when we move to clearance, so I’d say between the obvious things of closer receipts to sales and the improved penetration, it’s a pretty even balance and I think as we think about the second half, we’re thinking about it the same way.

Okay, great. And then as it relates to the better comps in the back half of the down 3 to down 5, how to think about inventory, what’s the right level of inventory? We were saying sort of down mid-singles per store, it sounds like where you’d like to end in the third quarter but should we expect that to build as we are looking for better comps in the back half?

I mean, high level, our focus is flowing receipts to sales and we think we’ve changed our business model sufficiently enough that if there is upside in the sales, we can flow additional receipts to support it. If the sales aren’t as good, we will flow less receipts. We have an opportunity to improve inventory so we’re going to continue to focus on improvement in inventory turn overall. That’s why we still think at the end of the third quarter, even with negative 3 to 5 comps, our inventory would probably be down a little more than that.

Perfect, and then just lastly on traffic, it seems like obviously a big reversal from the first quarter. We have seen continual improvement but in a positive territory, we see what’s happening in the Southwest as you are picking up that Mervyn’s business but perhaps talk about beyond that region, what you are seeing as traffic is obviously coming to you?

There’s a few areas of the country -- obviously the Southwest was a big driver of that, given the comps out there but a few other reasons were slightly positive and the other reasons were less negative, sort of in the low single, negative one or negative two type range for traffic.

So the range is tightening up?

It’s tightening up, yeah.

Great. Thank you.

Your next question comes from the line of Charles Grom of J.P. Morgan.

Thanks. Good morning. Wes, just looking at your balance sheet, your accrued liabilities are up 16% from the first quarter. Year over year they are up I think 6.5%. Can you just sort of discuss what’s causing the rise in your accrued liabilities?

Yeah, that’s -- I usually don’t get balance sheet questions, so that’s good to get one here, but most of it is in -- well obviously we’ve got more accrued bonus this year than last year, given our performance. Sales and property taxes are up a little bit more than our store growth. What’s come down quarter over quarter is mostly in accrued capital, given the fact that our store openings are roughly 25% less than last year -- that’s what is causing them to go down from the first quarter to the second quarter.

Okay. All right, great. And then just on the comp outlook, suggests about a 400 basis point down tick in the third quarter and then another 200 basis point down tick in the fourth quarter relative to what you did in the second quarter. Just trying to see why you are being so cautious -- is it something you are seeing in the business in August or is it just simply conservatism?

I think you guys -- I know you guys run out those two-year stacks and three-year stacks and that works sometimes but the way we are really viewing it is we just finished a season where we were down 3% for the spring. We took our guidance up from down 5 to down 8 to down 3 to down 5, reflective of our current run-rate. I think we’ve shown the ability to chase business better than what we’ve projected, if it materializes. But we are going to be conservative. We’ll have the inventory there to do better if the traffic is there.

Okay. All right, and then last one, again for you, Wes -- just the credit card deal with Chase expires I think in 2011. I am sure sometime next year you are going to start to address that. Can you just discuss maybe some preliminary thoughts on what your options that you may consider?

Well, I think it’s way to preliminary to start talking about that. I would like -- we are very happy with our current deal with Chase. They’ve been a good partner and we hope to continue that relationship.

Okay. Thanks very much.

Your next question comes from the line of Michelle Clark of Morgan Stanley.

Good morning. Wes, the first question, your pre-opening expense came in below plan, $11 million versus your guidance of 14. Are you able to negotiate better leases on the stores?

That was really just a function of timing on some stores that we originally had opening in the fall and that have been pushed to spring 2010, given the fact that on a ground lease, you have to start expensing rent approximately eight months prior to opening. That really was the biggest cause of the favorability.

Okay, so it was timing -- and then the second question, anything in terms of sourcing related gains? Are you starting to see anything? Have you started to see anything in the second quarter? And then what’s embedded in your guidance for the back half?

Yeah, the answer is there have been gains, prices are down roughly in the range of 5%. We see prices continuing to be down well through the end of the year and into next year, all of which as we always do, we try to reflect in a better quality product and a better style product for customers to give it more value. So certainly underlying everything we do is an assumption that our acquisition costs and clothing are going to be down year over year in the range of 5% or 6%.

Great. Thank you.

Your next question comes from the line of Robert S. Drbul of Barclays Capital.

A couple of questions for you -- first when you look at the sales plan for the back half of the year, how do you think the California grand opening to the Mervyn’s stores that you bought will impact the sales run-rate? And then the other question I have is on the gross margin side -- can you talk a little bit about the gross margin performance at your mid volume stores and sort of the improvement that we are seeing there?

Sure, Bob. I mean, on the sales line, I think Wes really described it the right way -- we are trying to reflect in our guidance the run-rate we currently have. I suspect that people may think we are being very conservative but I think underlying our assumptions is we see a weak consumer continuing through the back half of the year. The Mervyn’s stores and the Mervyn’s opening we think are a positive. There’s just no way they are not going to be. We think they are going to accelerate the share gains we are experiencing already in the Southwest and we are definitely going to try to leverage that across our existing store base in a big way but in the backdrop, always in the backdrop is a very weak consumer and I think that weak consumer, we just want to be planning very conservatively all the aspects of our business and as Wes said, I think we’ll be able to respond accordingly.

On the margin and the mid-volume stores, we’ve made a lot of progress this year. I think if you guys remember, a lot of our progress in prior years on margin were in our lower volume stores and our small stores and that progress continues to be made but our mid-volume stores are starting to run margins increases very similar to the company, which is a very good development.

Okay, and then just one follow-up question -- when you look at the transaction levels that you saw, what do you think led transactions to turn positive this quarter versus the past few in terms of the business?

Well I mean, obviously the big effect was the Southwest, given the strength of the business out there, you know, sequential improvement as some of our initiatives in California started to really take hold in the second quarter but we are seeing it starting to get some pockets of improvement in some of the other areas of the country. I’d say the Southeast is still the weakest region from both a traffic and a basket perspective but even that’s starting to moderate slightly.

Year over year though traffic improved in the second quarter everywhere -- it just improved by the most in the Southwest and I think, you know, obviously we believe that customers are starting to recognize that our value is superior and we are getting the market share gains we think we deserve.

Thank you very much.

Your next question comes from the line of Lorraine Hutchison of Banc Of America Merrill Lynch.

Good morning. Kevin, you had talked about the back half being a fight for market share -- can you just discuss your strategy for trying to take market share aside from the new store openings? Are you planning to ramp up advertising spending, lower your price points? What’s your most effective way to make sure you keep gaining share?

Well, at a high level, value is more and more important with the customer, so we are highly focused on providing the best value and we tried to talk about throughout the earnings call the fact that we’ve worked hard in the last two years to change our business model and we have a platform we think that’s superior in terms of the way we flow inventory to our stores, the way we reach out to consumers in marketing and as we said in the call, the fact that we think we have the newest and freshest store base in retail. And all of that is part of the value equation. In addition, the changes in terms of how we manage our inventory overall have allowed us the benefit of being able to fuel sales and traffic with some of that upside and we’ve certainly still gotten improvements in merchandise margin but the wins we’ve gotten in that regard are telling us that we should accelerate it so as we go into the fall and holiday season, with the weak consumer and market share really being what it’s all about, we are going to use those positives to fuel traffic and drive more sales. And ultimately that is where we think we need to be for the holiday season.

Thank you.

Your next question comes from the line of Jeff Klinefelter of Piper Jaffray.

Thank you. One question first on credit, Wes -- could you give a little bit more color on is this a new customers helping to fuel the gains there? Is it existing customers just increasing share? Any details on FICO scores and thinking along the lines of is this some read into the trade down or the customer coming into your store from maybe a higher channel of distribution? And then in general as credit continues to increase and I am pretty sure you are monitoring it closely but anything you can share on the quality of that credit? Any troubling trends out there?

Well, those were a lot of questions so I’ll try to get them all in. In terms of share, I think the biggest reason it’s improving is as you guys know, our credit card customers are obviously our most profitable customer and as Kevin mentioned value, we are putting more value into our credit event which I think is causing people to do more shopping during those events. We are getting new customers. We are always continuing to get new customers. We are making a concerted effort in California to get some of those customers that are looking for a new store on to our credit card and being aggressive in terms of soliciting them in the stores and trying to get them to understand the benefits of the card. However, we are not doing that at the expense of lowering any of our standards. Our approval rate, as I think I’ve talked to some of you guys in the past, year over year is down 800 to 900 basis points. We are reducing the initial lines that we offer people by approximately 25%, so we are being very conservative from a risk management perspective. You know, trends in terms of the credit business I think have been -- I wouldn’t say they are positive but I think they are leveling off and kind of becoming the new normal, which is the rate of increases in terms of delinquencies and things like that are starting to moderate. But overall, the credit business has been a very good business for us, not only to drive the sales but also in terms of just creating more loyalty.

That’s helpful -- just one other thing in terms of comp trends, are you seeing any other pockets around the country that you could identify as smaller examples of these Southwest share gains through consolidation?

Well, we’ve gained share in every single region so business has improved sequentially everywhere -- it’s just that the Southwest stands out and it obviously stands out for some obvious reasons but we are trying to fuel that. But there has been improved trends, particularly around traffic, everywhere.

Okay. Thank you.

Your next question comes from the line of Deborah Weinswig of Citigroup.

Good morning -- a few questions; starting on the pre-opening side, I think in every quarter of last year, you came in below your guidance as you did this quarter. I think in the first quarter of ’09 you were in line. What’s driving that consistently lower pre-opening costs versus guidance?

Well, some of it might be a level of conservatism on my part, given the fact that a lot of it is having to do with how much spending we’d need to do to attract people in to work at the store. Obviously in this environment, there’s not a lot of advertising required to get people working in the store. A lot of it is movement, as I mentioned earlier in the call, when stores flip out of one season to the next with the pre-opening expense with the ground [run], so there are a couple of reasons.

Is there anything in processes or is there anything you are doing to kind of increase efficiency?

No, not particularly -- I just think it’s been a -- I’m a conservative guy, as you know, so I think a lot of it is just to do with the fact that our store team have been more efficient in terms of getting people hired at a lower cost.

Okay. And then Kevin, I think there’s two categories that I wanted your insights on -- just on the home category, what do you think is driving your outperformance versus your peers? And also I know it’s kind of buried within accessories but on the handbag front, most retailers we are hearing from are having a tough time in that category and it seems to be one of the strongest for you, so if you could help us there, that would be great.

I think we suspect in home, it’s a combination probably of two things -- one is certainly similar to the Southwest. There’s been the elimination of a major competitor in the home market with Linens N' Things gone and I think to some extent probably everybody is benefit. It looks to me like maybe we are benefiting a little more. It’s an area of focus for us in inventory management, as I mentioned on the call beyond the cycle time initiatives in fashion, we’ve made a real commitment to basics. Home is a really basic category and that is a category we are supporting with inventory and I think we are getting our rewards for that. On the handbag front, beyond the overall trend, clearly there’s been a pretty seismic shift in the way consumers are looking at handbags and they recognize they can get an incredible amount of style and quality for a much better value than they might have been willing to spend a year ago. We are pretty well-positioned in that regard. Secondly, we’ve made a lot of improvements in our merchandise content so I think we are really happy with the way our content looks today and I think as you know, Deb, all of our new innovation stores have essentially a new, completely new customer experience in the handbag world and it is far superior to what we’ve had before. I think that’s also feeling the growth.

Okay. And then I think one of the key themes of this call today has been gaining market share -- do you think it’s new customers or a greater share of wallet from your existing customers, or a bit of both?

It’s definitely both. I mean, we are definitely gaining share of wallet with our existing customer but as Wes mentioned, we can see through the credit card data and the opening of really solidly financially sound new accounts that we are gaining new customers from competition -- traditional department stores I think in a lot of cases but also specialty stores in a lot of cases and I think they are recognizing Kohl's is -- you know, as we said in the call, kind of the smarter choice but particularly so in an environment in which they need to stretch their dollar a lot further and value becomes a more important component.

And then those customers where you are gaining greater share of wallet, is it that they are shopping more categories or a greater penetration within existing categories?

They are definitely shopping more categories. I mean, one of the most exciting things for us in the business that’s happened in the first half of the year and sequentially improved I think in the second quarter is that we’ve got improvement in our sales trends across all regions in the country but also across all merchandise categories. So as you know, we definitely like to see a tight spread in our performance between the worst performing category and the best performing category because that indicates most fully that she is shopping the whole store and it’s not dimensionally about one particular business. Same thing in regions -- you know, certainly the Southwest is the standout but when we get improvement everywhere, it kind of tells us that while the Southeast consumer is a lot weaker, she still is recognizing Kohl's is a better choice.

Great. Well, thanks so much and best of luck.

Your next question comes from the line of Bernard Sosnick with Gilford Securities.

Good morning. With the opening of the Mervyn’s stores, you are going to significantly flesh out your presence in California. But even so, how would you rate your positioning in California versus what you would foresee as optimal?

Well, we have a lot of growth opportunities still in California. If you look at it on a per capita basis or compared to some of our competitive set, even though our store base has risen roughly 50% in the last year to two years, we are still -- we still have a lot of room to grow so I think we see California as a major growth opportunity for Kohl's in the future and I think it’s definitely a part of the country where when we talk market share, we are going to -- you are going to see some very significant shifts in share as we raise our store base.

Great. Thank you. I appreciate that.

Your next question comes from the line of Richard Jaffe of Stifel Nicolaus.

Thanks very much, guys. Just I guess a quick follow-up question on the real estate -- do you see the real estate opportunities for you guys being more inclined to be leases, raw land and build-out or acquisitions of existing stores? And if you could tie that into your cash position, and then your cash position related to some of the debt that is coming due at the end of this year?

Well, our cash position allows us flexibility I think to buy real estate if that’s the option that presents itself but we are really indifferent to the type of deal. The number one priority is to get the best location and then on the debt question, we expect when that debt comes due in early 2011, to just retire it and I think we have $300 million due in April and $100 million due in October.

And so you’ll just use the cash reserves to pay that off? Just a quick question -- any qualitative comments on the credit card portfolio, the quality of borrowing you are seeing? Obviously it’s up a lot - has it --

Well, the share is up a lot and I think that’s because people like the discounts that we are giving in the secret sales, so part of the strategy to gain market share is perhaps the discounts have gotten a little steeper and it’s a lot better to get 20 off and use your Kohl's card than to use your airline mile card and get nothing off. We haven’t changed the metrics in terms of the quality, as I mentioned earlier. It’s actually a lot tougher to get a Kohl's card this year than it was last year and people’s scores are going down naturally with the economy. But we’ve actually tightened our standards over the last 12 months.

So are fewer cardholders spending more or is it that you are still signing up a lot more people?

I think it’s a little of both. We are getting more new customers that recognize the benefits and people are concentrating their overall spending at Kohl's more towards the credit card events than the non-credit card events.

Despite the higher --

I mean, really, we’re really -- I mean, I don’t want to say indifferent but to a great extent, it’s just the customer’s choice how she wants to pay for the merchandise and right now, she wants to pay a little more with her credit card because she recognizes that she gets a little better value and value is a little more important.

Sure. I mean, you make it very worthwhile for her to use that card. I understand. Great. Thanks very much.

Your next question comes from the line of Dan Binder of Jefferies. Daniel T. Binder - Jefferies & Co.: Good morning. A few questions for you -- I guess first on the store growth plan for next year, it seems conservative. You guys are obviously taking share at a pretty rapid pace, comps are trending in the right direction -- just kind of curious why you wouldn’t be pushing on the peddle a little bit harder. And then just curious what your flexibility is in terms of taking that store count up? What would you envision in a best case scenario?

I don’t think we have a best case scenario. I mean, the short answer is that we are comfortable with the 20 to 25 stores that we currently have essentially planned or committed for. I think we tried to use the example of what happened last year -- I mean, essentially it wasn’t until the end of December last year actually probably even early January of this year before we made the decision to go ahead with the Mervyn’s acquisition and that is over 75% roughly, right, Wes? Of our store openings this year so it gives you an idea of the flexibility that that allows us. And I think if you just think about the real estate market right now, it’s an environment where we think there are going to be more opportunities, it makes sense there are going to be more opportunities. We are winning in a big way from a share perspective, so I think existing landlords and developers are going to be more apt to be thinking about Kohl's than they ever were before and we just want to have flexibility. And we tried to make the point from all aspects, a very strong balance sheet and an enormous increase in cash flow that we have had that we’ve got the ability to do it, so if the opportunity presents itself, we’ll be aggressive.

And even with the 20 to 25, quite frankly, I think versus our competitive set, that might be the high store opening of all of our competitors as well. And we have plenty of room to improve -- I think we’ve talked to you guys many times, Kevin and myself, to improve our sales per square foot in our existing stores and that’s a big focus of what we are trying to do as well. Daniel T. Binder - Jefferies & Co.: Okay, and then just two quick follow-ups, or separate questions -- anything you can tell us about what we should be thinking about in terms of new brands in the back half of the year in terms of what categories you are working on? And then secondly, as you see some deflation in pricing in the fourth quarter, what should we expect to happen to average ticket?

On the new brand front for this year, there won't be any new brands. Our last launch scheduled, we just launched Mud two weeks ago and our last launch, which we are really excited about is the Lauren Conrad launch at the end of September, first of October -- we think those are going to be pretty spectacular. As you know, we’ve had a lot of new brand launches this year and they have all been successful from day one. We definitely are looking for new brand ideas for next year. We would expect to have new brand ideas for next year and as we get further into the fall and holiday season, we will tell you about those. From a deflation perspective, it’s continuing so it’s not new and we are continuing to do the same thing we’ve done, which is try to put it in the quality and the style of the garment and keep our average ticket moving in the right direction and we’ve had a lot of success in that regard so we are giving better value, not necessarily by lowering the price because we don’t think that’s a sensible way to approach it but by giving the customer much better product than she got before, given the traffic numbers, given the comp numbers, given the total numbers -- it looks like she thinks that’s a good idea. Daniel T. Binder - Jefferies & Co.: Great, thanks.

Your final question comes from the line of Erika Maschmeyer of Robert W. Baird.

Good morning. If you could talk a little bit about the proportion of your receipts that are on size optimization, do you still think that you could get to 70% by spring of 2010?

Short answer is yeah, we’re in the 40% to 50% range right now, of new incoming receipts and we still have the same objective, which is at the end of the year as we go into spring of 2010, about three-fourths of the inventory would come in from a size optimization perspective.

Great, and then in terms of your real estate pipeline for next year, are there any specific retailers or opportunities that you have your eye on in particular? And then are the 20 to 25 stores you have planned right now new developments?

The 20 to 25 stores are mostly new developments -- there’s a few takeovers in there but a majority are new developments and in terms of other retailers, we obviously have a list of locations we would like to get but that is all just dependent on what happens with competition, see how it shakes out.

That makes sense. Thanks so much.

That concludes the question-and-answer session. Gentlemen, do you have any closing remarks? This concludes today’s conference. Ladies and gentlemen, you may disconnect at this time.