Good morning. My name is Sierra and I will be your conference operator today. At this time, I would like to welcome everyone to the Kohl's Q3 2009 earnings release conference call. (Operator Instructions) 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 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 a replay of this call will be available for 30 days but this recording will not be updated. So if you are listening after December 12th, it is possible that the information discussed is no longer current. I would now like to turn the call over to your host, Mr. Wes McDonald, Chief Financial Officer. Sir, please go ahead.

Thank you. With me today is Kevin Mansell, Chairman, President and CEO of Kohl's. I will go over our financial performance, including some balance sheet comments and Kevin will take over the rest of the call to talk about our sales, marketing and merchandising initiatives, as well as our expansion plans and our earnings guidance. Start off with a recap of the quarter, total sales for the third quarter were approximately $4.1 billion this year, up 6.5% from last year. Year-to-date, total sales increased 3.1% to $11.5 billion. Comp sales for the quarter increased 2.4%, driven by a 3.6% increase in transactions per store. Average transaction value decreased 1.2% as a 2% increase in average unit retail was offset by a 3.2 decline in units per transaction. Year-to-date, comp sales decreased 1.3%. Transactions per store increased 0.5% but were more than offset by a 1.8% decrease in average transaction value as a 3.2% increase in our average unit retail was offset by a 5% decline in units per transaction. Our credit share was 49.7% for the quarter, up 300 basis points over the prior year quarter. Year-to-date, our credit share is 47.3%, a 280 basis point improvement over last year. Our gross margin for the quarter was 38%, up almost 60 basis points from last year. Year-to-date, our gross margin rate also increased almost 60 basis points to 38.5%. The increase reflects continued improvement in inventory management, lower clearance levels, and higher penetration of private and exclusive brands. We would expect our fourth quarter gross margin to increase 50 to 60 basis points over last year. SG&A increased 4.6% for the quarter and 4.2% year-to-date, slightly more than our guidance due to higher-than-expected sales. For the quarter, we achieved 46 basis points of leverage on that 2.4% comp, which is…

Thanks, Wes. As Wes mentioned, comparable store sales increased 2.4% for the quarter. By line of business, accessories and footwear outperformed the company for the quarter. Accessories was led by strength in sterling silver jewelry, fashion jewelry, and handbags. Women’s and children’s performed best in footwear. Men’s, women’s, and home were substantially with the company comp. Men’s was led by active, basics, outerwear, and casual sportswear; women’s was strongest in outerwear, both classic and updated sportswear, and intimate; and home was strong in small electrics, bedding, and bath. Children’s was below the company with strength in toys and boys. By region, the Southwest was the strongest region with mid-double-digit comparable store sales increases. Substantial improvement was shown in the South Central and Southeast regions, and both achieved positive comp store sales for the quarter. Many of our initiatives to more effectively tailor our assortments regionally appear to be gaining momentum in these regions. The Midwest and Northeast were the weakest regions for the quarter. 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…

(Operator Instructions) Your first question is from the line of Charles Grom with J.P. Morgan.

As you guys outlined, the leverage in SG&A was better. It looks like at about close to 19 basis points per comp point versus the usual I think 5 to 10 basis points. Just wondering if you think that is sustainable over the next few quarters or was there something that helped you out this quarter that won't be repeated?

No, I think we -- if you plug in the metrics, you probably get back to the normal 5 to 8 basis points for every 1% in the fourth quarter. We probably under-invested in store payroll a little bit in the third quarter. We couldn’t quite get the payroll to chase with the sales, so we are going to try do to more up-front loading of the payroll to get a better customer experience.

Okay, great. And then historically you guys give us a little bit of the monthly color throughout on the comp front, given the volatility last year -- could you give us a little, shed some light on how you think November, December, January is going to look relative to the down 1, the plus 2?

Sure. We think November is going to be probably toward the lower end of the quarter. I know I’ve seen some preliminary estimates out there from some of the analysts that would indicate a double-digit increase. I think people are looking at the two and three are stack comps and you know what a big believer I am in those, but it is difficult to do that from last year because we had a shift in the calendar where Thanksgiving was in week three in 2007 and in week four last year. That was the cause of the big negative comp in November and a more modest decline in December, so you really have to use November as an apples-to-apples comparison and put in what you think we are going to run. December is going to be toward the high-end of the quarter, helped by the extra day, which is worth approximately 2% to the month. And then January will be somewhere in the middle.

Okay. All right, great. And then just last question would be on the original 73 stores in California before you did the 37 in early October, could you just remind us what the sales productivity of those stores are relative to the total company average?

Well, the stores in California are still a little bit less productive than the stores as a whole but they have obviously made up a lot of ground in the last year with Mervyn’s going out of business.

Okay. All right, thank you.

It was actually -- we had 91 stores in California prior to the 30 that opened for the total of 121.

Okay, all right. Great, thanks a lot.

Our next question comes from the line of Deborah Weinswig with Citigroup.

I think your original gross margin guidance for the quarter was up 10 to 20 basis points and you came in up 60 -- can you talk about what was the greatest improvement or greatest outperformance in inventory management, the lower clearance levels or the higher penetration in private and exclusive brands?

I think it was a pretty equal mix. I mean, we had better than planned sales and so cycle time improvements worked in our favor in that regard, as we moved through inventory more quickly on the fashion side. I think that had a positive influence. Certainly the improvement in particularly our exclusive brand penetration in the quarter also had a major positive improvement. So it was relatively even.

I think clearance might have had slightly more than in the spring, just because we were down 40% in clearance and in the spring we had been down more like 20 to 30 on a per store basis.

Okay, and then is there any negative impact from a lack of clearance inventory? I know there certainly are times of year when that does drive traffic -- is the third quarter one of them or is that really more of a fourth quarter driver?

No, I mean, I think -- there’s always real tight periods, right? A period like July when there is a transition or perhaps January when there is a transition where clearance is a more meaningful impact but in key selling periods like September, October, November, December, it really has a very small impact on sales.

Okay, and then two more quick ones -- can you just talk about your outlook for deflation and how are you managing your business as a result?

Well, the current thought for the spring season is that our incoming receipts continue to look like receipts are being received below last year’s level from a cost standpoint, so we are still experiencing cost deflation in the first and into the second quarter. I think we are prepared for the fact that that probably at some time late in the second quarter or maybe third quarter will start to turn the other way, not necessarily up but perhaps more like the year before as we annualize the big decreases from last year. So deflation is still pushing prices down in the spring season and we are thinking that we need to be prepared for prices to be more moderately even to the year before by the time we get to fall.

And then last question with regard to e-commerce or online, I guess you saw somewhere that the company expected online sales to climb around 30% -- I just wanted to see if that was a good number. And then also, what are your thoughts on [sight to store] in terms of driving traffic or that initiative?

30% I think is a good number. We are trending probably a little bit better than that right now year-to-date, but just being conservative and the scale of the fourth quarter is bigger, I think 30% is a good number. You know, we definitely are continuing to see consumers use our online environment to make decisions about what they are going to buy in the store but as you can tell by the scale of the business, it’s now becoming a more meaningful business in terms of real sales dollars year over year.

Okay, and then to put Wes on the spot, Wes, is there a -- if we think about this quarter, is there a number that you have in terms of that contribution of comp from online?

It’s been running around 70 basis points. It will probably be a little bit less than that, even though it grows in the fourth quarter. Obviously our total sales grow a lot more than that so maybe for the quarter itself, it is probably going to be somewhere around 50 basis points.

Great. Thanks so much and best of luck.

Our next question comes from the line of Jeffrey Klinefelter with Piper Jaffray.

A couple of questions -- one, just in general, insights into the impact from the Southwest and from California. I know people are concerned as you lap that next year, that significant contribution. Could you kind of talk through how you see planning your business through that, both comping the existing stores that benefited from consolidation as well as in incorporating the new stores that you have opened there? And then two other just quick housekeeping ones -- your remodels, can you share anymore metrics on that in terms of the pay-back period or the cost of those remodels and the impact to comps? And then SG&A guide for Q4, the year-over-year change in incentive comps that is embedded in that?

On the first part, I’ll take maybe and Wes will talk about the remodels and the SG&A. The impact I think of the West Coast has been around 200 basis points in the third quarter, which is pretty similar to what it was in the second quarter in terms of improvement. I think generally, Jeff, the way we look at that is it will continue to be a major positive from the perspective of lift to the comp, the scale of that business as we go into 2010 is substantially larger than it was before and the per store volume is substantially larger which allows us to drive obviously a lot more marketing into those individual metro markets to drive more business and the productivity in those stores have climbed significantly from the levels they were at in 2008. So I think we are thinking about it as all positive, regardless of whether we are lapping big increases from the year before. While we are doing that, as I said the per store performance of those 90 original stores and now 121 total stores is significantly larger than it was a year ago, so our share mine, our share market is much, much stronger.

Okay, but you still feel comfortable -- in terms of a comp outlook, I guess that’s really the point -- it’s substantially higher now. Do you think with the additional marketing and just the general momentum in terms of consumer behavior, you feel comfortable that you can still continue that upward momentum in comp and productivity?

We still have a lot of opportunity in California --

Especially in Northern California.

Yes, as Wes said, particularly in Northern but to get those stores to where they ought to be performing on a per store basis given the age of the stores and the demographics in the market and the weakness in the competition, there is a lot of room to improve still.

And then on the remodels, I mean, obviously we wouldn’t be considering upping it from 65 if we weren’t pleased with what the results are. I mean, we are not going to get the same type of returns at a brand new store. We’re not materially changing what we sell, like some other guys that remodel and add food and things like that. But we want it to pay for itself over the remodel period of about two years. On the SG&A side, I’m not going to give you the number on incentive comp but I will tell you if we are able to hit these numbers, everybody this year in our company will have a meaningful bonus versus last year when we paid a very modest bonus to basically just the manager levels. So we have been able to absorb that accrual all year long within our SG&A guidance and it’s not something that is going to be a headwind. It’s been included in our guidance all year long.

Thank you.

Our next question comes from the line of Mark Miller with William Blair.

My question is on the reduction in clearance inventory, which obviously has been a nice source of gross margin improvement. Can you prioritize for us which are the biggest drivers today of the reduction in clearance inventory, thinking about markdowns, size optimization, cycle times? And then how far along are we on this opportunity? I mean, it’s really incredible what Kohl's has done but you are not going to be able to continue to reduce clearance inventory per store at 30% to 40%, I wouldn’t think in perpetuity. So when does clearance inventory reach an equilibrium going forward?

Well, I think from the impact on how we are able to continue to run with lower levels. It has been driven I think first and foremost we’ve had conservative sales plans, right? And within our conservative sales plan guidance and our own internal plans, the relative plans that we have in more fashion related categories, which of course we have to transition more often, has been even more modest and so as we have exceeded those sales plans, we’ve been in a great environment where our sell-through rates are higher, our transition levels therefore are dramatically lower and even though you at the overall inventory being down, for instance, at the end of the third quarter at 3%, the actual level of inventory year over year in fashion categories is substantially lower than that. So that’s been a big piece of it. Naturally cycle time is really critical there. I think we’ve pointed to the third quarter freshness of inventory. We made that important point in the call because I think there was some question early in the year if we continued to outpace our sales guidance, would we have enough inventory would we be able to satisfy the customer and I think cycle time is clearly impacting that positively. So I think those are the key things.

Yeah, I mean really the least important thing is the markdown optimization because if you minimize the stuff going into clearance, the software works much better with less inventory going into clearance. And I think it’s a good point you make but one of the benefits that we really haven’t seen a whole lot this year is size optimization and that’s all really to come next year, so hopefully that will give us the same kind of improvement on margin rate but more importantly on sales.

Okay, and on the second part of the question then, I mean, how far along are we on this? Can you continue to drive anything like this next year for a reduction in clearance inventory or would you be satisfied with just even a low double-digit type of reduction in clearance inventory next year?

Well, I think going forward, we really will spend a lot more time focusing on what that level of clearance inventory is made up of, so we will be much more focused on how is it balanced across the store portfolio, as Wes just mentioned we really haven’t had any benefits from size optimization per se and so as we look at those levels, while they might be modestly less compared to how dramatically less they are now, the balance of how that is by size or how that is by store could become a big positive for us as well.

I still think we have opportunity in the spring. It will be hard to do much better than we did this third quarter. I mean, it’s just pretty phenomenal performance to be down as much as we are. But we do have opportunities certainly in the spring.

Thank you very much.

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

On the accounts payable increase, did you change any policies or terms with your vendors to get there? And I guess is this kind of level as a percentage of inventories sustainable going forward?

Well, it’s always going to fluctuate by quarter. The third quarter is traditionally our highest, the fourth quarter is traditionally our lowest obviously because we’ve paid for all the holiday receipts but I think the improvement will continue. About 18 months ago, I think maybe even two years ago, we partnered with -- actually now it’s with your firm, Banc of America, and a company called Prime Revenue to give our vendors a platform to take advantage of the fact that most of our vendors have lower credit ratings than us, so they can trade our payables on the platform and get a much lower cost of funds than they could through a factor or things like that, so we’ve been moving vendors to that over the course of the last 18 months and of -- I would say of that accounts payable benefit, probably a little bit more than half of the benefit has been from moving to that platform. The rest of it has really been as a result of more frequent flows and better inventory management.

Okay, and as we see the cash start building up, increasingly building up on the balance sheet, is there a level that you are waiting for to hit in terms of cash cushion before you would start a buy-back, or how are you thinking about --

Well, it is something we are going to address next year with our board in our February meeting. I think I’ve mentioned pretty consistently that first is to make sure we have $400 million to pay off that debt in 2011, which obviously we have. Second is to provide flexibility from a real estate perspective to not only go out and get additional [inaudible] as we did with Mervyn’s but also if you do any research in commercial real estate, lots of the guys have loans coming due next year and we think we could be in a position to get very favorable conversions from leases to owned stores and help out the landlords with their what could be a cash crunch for them, and that’s one of the reasons we are laying the cushion build as well. So if those two things don’t come -- I mean, if that doesn’t come to fruition, we will certainly take a look at restarting the share repurchase at that time but we want to give ourselves plenty of flexibility.

Thank you.

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

A few questions -- first, traffic in the store in the quarter obviously transaction count per store up nicely, 3.6%. First question is what percent of that do you think is attributable to acquiring new customers versus existing customers coming back into the store on an increased basis? Second question, you discussed during the call market share gains several times. I would like to hear where you think those gains are coming from from the greatest degree. And then third question, Wes, on the credit deleveraging in the third quarter, how we should think about go forward.

On traffic, I think our traffic increases always are a combination of both new and existing customers. I mean, we do see our existing core customer base kind of the people we might call the brand lovers, more and more embracing the business and spending more of their money at Kohl's but certainly given the growth particularly I would say in the Southwest and the West Coast, there is a significant number of new customers. Obviously we have a lot of new stores in that region that we are in trade areas we didn’t even exist, so there is a significant number of new customers there. But also in the existing California and West Coast stores that had such a positive comp store increase, a big part of that is just new customers. Where are they coming from? You know, clearly in a place like California, there were customers up for grabs that used to shop at Mervyn’s and certainly we’ve gotten more than our fair share of those. Other than that, I think it’s more reflective of our longer term customer trend, which is that they come from department stores and specialty stores, particularly in the last 12 to 18 months, where people were identifying the fact that they can get great brands, particularly as you see in the penetration of our new exclusive brands, at much better value, so I think that trend continues. The share data indicates that as we look at each of our major categories, our market share gains are coming from department and specialty stores.

And in terms of credit, I mean, I think like I said on the call, absent the cost with that legislation we would have leverage this quarter, I think going forward we will probably get minimal benefit. You know, like everybody else we are seeing an increase in bad debt expense. I don’t think it’s to the same level as some of our competition. I guess the good news is we are seeing some stabilization, so I would expect to get minimal benefit in the fourth quarter. Probably that’s similar for spring and I think by the back half of next year, we’ll start to see some more benefit as we start to cycle through some of the bad debt and it starts to go down a little bit more.

Great, thanks, guys.

Our next question comes from the line of Robert Drbul with Barclays Capital.

A couple of questions -- on the women’s business, as you look to next year, Kevin, do you expect to have the same lines? And I guess what I am trying to get at is with the J.C. Penny/Liz Claiborne announcement, do you expect to have any changes with your own, the Liz Claiborne line that you have with access?

Well, we haven’t strategized 2010 impact from the Claiborne announcement, to be honest with you, Bob. You know, witnessed the incredible success we just had on the launch from Lauren Conrad and our decision to move that forward into all of our stores in a big way, you know, we are going to have to make decisions about the relative proportion of each of our core brands. One of the things that has been most exciting to us in the third quarter was that the women’s business really for the first time this year ran with the company and the reason it ran with the company is that unlike the previous quarters or the fall holiday of last year, our core opening price point private brand performance significantly improved and so that’s something that we are looking at as well. We think that’s to some extent customers looking for great value but through some extent, the team I think has done a good job starting to reflect better design and better quality from a garment perspective into our assortments.

Great, and then a couple of questions on the inventory -- can you tell us what you are planning for Q1 inventory, like how you are thinking about the business for the spring? And just to follow on one of the earlier questions, you talked about product cost a little bit but how much of that do you think will get reinvested in price or how much of it will be able to fall to the bottom line as you think of the first half of next year and drive gross margin?

Our inventory level that we are forecasting currently at the beginning of the first quarter is flat on a per-store basis, and that gives you some insight into our thinking as we enter spring. Obviously we have exhibited a good ability to generate sales above our inventory level, so we are looking to continue to improve on the turnover line. From a productivity perspective, that’s I think pretty critical for us to do. What was the second part of your question, Bob?

How much of it -- I think you said flat in the second quarter but in the first half of the year, first quarter, do you think a lot of that could continue to drive gross margin or will you reinvest a lot of that into price?

We are going to reinvest as much as we possibly can to improving the quality of the garments that we sell in order to provide better value, so we have consistently seen an ability to raise our average unit retails, even in this environment and the reason we are able to do it is we are putting more and more of the cost savings into a better quality garment and the customer is recognizing it.

And my last question is on the next year store count, for the 30 stores, you said you picked up some additional Mervyn’s -- can you tell us how many you did pick up at this point and predominantly where they are located?

I think it was four and they are -- I believe there are three of them in California and one of them in New Mexico.

Great. Thank you very much.

Our next question comes from the line of Adrianne Shapira with Goldman Sachs.

Kevin, you had mentioned that the customer is still very focused on value heading into the holiday season -- just help us think about your promotional cadence heading into the season -- more or less, different? I mean, it’s obviously the margin expectations for the fourth quarter is still healthy as a function of lower clearance and private label but just help us think about how you are positioning into the season?

The way we planned the fall and holiday essentially was around our pretty conservative sales guidance, which originally was negative 3% to 5%, so our whole budgeting process and marketing was sort of built and based on that. The two things we are seeing, Adrianne, is success on the marketing team’s ability to drive higher productivity. They leveraged very, very well in the third quarter and I think for the year-to-date, Wes would tell you in addition and it’s because they are doing a much better job of identifying the type of media that is giving us the biggest lift and investing percentage wise more into that media type and less into what is not as productive? So we are still very focused on productivity for the fourth quarter. Having said that, there are selectively areas that we have put additional investment into -- the most obvious one continues to be the West Coast because we are getting a return on that investment and we intend to continue to do that in the fourth quarter as well.

Okay, great. So year over year, if you were to think about more aggressive, less aggressive, and speaking more to sort of the intensity of the value message.

I would think about it very similarly to last year but we think smarter. We are doing it more intelligently because we’ve been able to tear apart our investment and look at the sales that are generated off the individual investment and come to better decisions on where to put more marketing.

Great, that’s helpful. And then just following on that marketing, as you are doing such a good job on the inventory management less clearance, are you having to rethink some of your events and how you speak to them in 2010 and beyond? Some of the events have been focused more on sort of clearing clearance but with less clearance to clear, do you have to rethink your event posturing?

Well, I mean, marketing is always undergoing change and evolution and to be honest with your, our primary focus continues to be on productivity. We still think that we are owed much in the same way as we talk about inventory, higher productivity for our marketing investment. We spend plenty of marketing. We are spending an enormous --

I’ll echo that, yes.

You can hear the CFO in the background -- we are spending plenty on marketing so it’s not like we don’t have a share of voice, it’s not like there’s not awareness of Kohl's. It’s really all about very similarly to our approach on inventory, how do we use technology and returns to make better decisions as we reinvest.

Okay, and then Kevin, just when you think about 2010, you are talking about obviously very focused on gaining share, we’ve seen the Lauren Conrad sort of accelerate launch -- help us think about other areas of opportunities, where you are focused? We’re hearing accessories, footwear obviously leading the chain, so help us think about where the white space is.

Well, we are still highly intent on maximizing our successful men’s and in particular women’s apparel brands that are exclusive into our footwear, accessory, jewelry, home areas more effectively. We think there is a lot of opportunity to do that. In many cases, they are not penetrating as well in those areas simply because we have a lack of offering or a lack of intensity in our merchandise presentation or marketing, so that’s probably our primary focus. Secondarily, there are -- we’ve had a lot of new introductions in women’s. We’ve had a fair amount in kid’s and so areas like men’s or areas like home are probably higher in terms of their importance of areas that we are looking at for newness.

Okay, and then just lastly, Wes, we heard no buy-back for the time being yet you are ramping store growth, perhaps even accelerating store remodels -- help us think about CapEx, where is that going?

Well, I said 650 for this year. I think next year you can probably use 750 for this time. We have some other projects that we would classify as base capital. You know, with that kiosk test that we are doing, if we roll that out, that’s an expense that would be in last year. So we’ll give you a heck of a lot more detail in February on that but if you are modeling next year, that’s probably not a bad number to use.

Thank you.

Our next question comes from the line of Liz Dunn with Thomas Weisel Partners.

Let me say congratulations on positive comps and 20% earnings growth -- I’m not sure anybody said that. I just wanted to follow-up on the gross margin questions. I wanted to just make sure I understand -- so there’s less clearance but you will continue to be sort of loud and have those early promotions you have become known for for sort of the Black Friday period, but then the sort of delta versus your original gross margin guidance was the penetration of private brands -- is that the right way to think about gross margin?

I think it’s a combination of the private brands and the better clearance performance and it’s also quite frankly we recognize we’ve been fairly consistent at beating our gross margin guidance through three quarters. We don’t see any reason in the fourth quarter that we can't continue to do that. We have built into our plans the ability to be aggressive on price and very competitive and it’s just really recognizing that we have been able to achieve better than our guidance and going into the fourth quarter we have a lot more clarity and that’s why we took the guidance up. Plus we figured you guys were going to put it in there anyway, so we might as well be up-front with you.

Okay, and then as we think about the 30 stores for next year, would it be possible for that to be a higher number? Are there other opportunities to take real estate from retailers that have gone away, like Mervyn’s or --

It’s really at this point, it all depends on the landlords and their willingness to negotiate. And if there were fairly quick decisions post holiday about other retailers pruning some of their store bases, if that happened relatively quickly, you know, we closed on those Mervyn’s stores in January and we are able to open them in October. I’m not saying that that’s likely but we could pick up a few more.

Okay, and then finally just on the CapEx, I think versus your original expectations for the year, CapEx has come down quite significantly -- can you just talk about the places that you did a little bit better?

The biggest delta was really in our new stores. We were very conservative in our estimates on how much it would take to remodel those Mervyn stores in the fall and I think we came in a lot better for a number of reasons -- one, the economy allowed us to get multiple bids from GCs that were very aggressive; two, that kind of weakness in the economy also led to better prices for fixtures and things like that; and then secondly, we have been able to compress our remodel period so we used to spend some money in the prior year for the first wave of remodels. Now we are able to basically compress all the remodel spending in the year of remodel, so that’s part of the reason next year’s CapEx of 750 is up a little because some of it is just a shift from what would have been spent this year into next year.

You know, to be honest also, Liz, on that, the -- to be fair, the construction team, I think Wes would echo, did a very good job of managing, taking over those 30 something stores in January and opening them on September 30th at much lower cost than we had predicted at the beginning of the year and they pretty much did the same kind of job on the remodels as well, so I think to some extent, Wes would say he gives them a lot of credit for --

Yes, they have done a great job of basically -- we’ve added scope everywhere and the costs have come in flat or slightly down, so they have to continue to do that, though.

Okay, thanks. Good luck for the holiday.

Our next question comes from the line of David Glick with Buckingham Research.

Most of my questions have been answered, just a question for Kevin on the private and exclusive brand front -- you’ve had a significant increase in the penetration. I mean, how do you think about -- I know you guys have never been big on establishing targets but are you getting close to a feeling where given the importance of national brands, you don’t want to push it any further? I mean, you mentioned home and men’s as an opportunity that might push a little bit higher but how are you thinking about the penetration over the next few years?

I mean, there isn’t any slow down in momentum. If you really think about the penetration increases over the course of the last year-and-a-half, they have almost all exclusively come from our exclusive national brands, so from a customer’s perspective, there’s really no difference between Dana Buckman or Vera Wang or Lauren Conrad -- you know, from a brand perspective, they are high credibility, high quality, high awareness, just like what you might consider a more broadly distributed national brand. It’s just they happen to only be at Kohl's, so as long as we are able to continue to identify areas in the store that have opportunity to implement new strategies and brands, and as long as we can find those brands effectively, penetration is going to continue to go higher. It will clearly go higher next year because there are a number of brands this year that are new, weren’t even in the stores the whole year and are in their first year only and are being expanded into other categories like accessories, footwear, intimate or home that will drive that number up. We don’t have a number in mind, David. Honestly I think the consumer will vote consistently but keep in mind that almost all of this growth is coming in exclusive national brand partnerships.

Great, thanks for the color and good luck in the fourth quarter.

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

Thanks very much and great results, guys but a question on the Internet and the opportunity that presents -- if you could talk through Internet sales versus -- or direct channel sales versus stores, the chains there, and the opportunity you see, particularly as you roll out or introduce kiosks?

Well, the kiosk strategy is not really contemplated in any of the numbers we are giving you. That’s a test at this point. We are pretty bullish on it and we think we are seeing very good results but it is really not a meaningful impact to the current trend in e-commerce and it’s really not in our thinking for next year at this point. We would get through the end of the year, we’ll examine, decide a rollout and then think about it. The sales in e-commerce have come through better execution as a part of the e-commerce team. I think a better creative platform online for sure, stronger fulfillment strategies, and also a broader offering. I mean, we are extending our offering significantly from where it was a year ago. That was an opportunity for us vis-à-vis competition. If you went back a year ago, most of our key competitors outperformed us on a e-comm online sales compared to brick and mortar and while they still do, we are closing the gap very quickly and so extending the assortments, getting into categories that aren’t offered in the store but also extending size ranges of categories that are offered in the store is all part of the strategy.

What percent of your sales today are on the Internet or through the direct channel?

I think we are going to hit somewhere around $450 million at the end of the year if we kept --

Yeah, I think it’s closer to 350 but --

Okay, so maybe somewhere between there? And --

Kev’s right -- I was thinking last year. Sorry about that.

Gotta correct the CFO.

That’s a good thing. The assortment online is now more than what’s in stores, 100% of the store assortment plus extended sizes and colors -- is that a good way to look at it?

Well, we also have a much bigger direct to vendor business. Those are the businesses Kevin was talking about that we don’t have any inventory risk and you really get outside the box and start carrying -- we might carry a small bath rug in store but we carry a much larger room sized rug through direct, through the same vendor. And before last year, we really weren’t in that business at all.

And that’s basically a drop-ship business where you never take inventory?

Yes.

That’s excellent. How much of your business today is replenishment, your in-store business?

You know, to be honest with your, Richard, it all depends on the definition of replenishment. I mean, we consider categories, the obvious categories like hard home or socks and underwear, et cetera but we also consider categories like denim, which while they are not per se replenishment are in fact consistently in our stores so -- I mean, we’ve used a number as a base of like 30% of our business. I think that’s fair, Wes, right? And I think that’s a good number to use as a percent of the total. There are categories that we kind of consider replenishment that would drive that number up but the way you are thinking about it, probably 30%.

That’s great. Thanks a lot, guys.

Our next question comes from the line of Patrick McKeever with MKM Partners.

You mentioned accessories and footwear as leading the company during the quarter and I was just wondering on footwear, if you saw -- I can't remember where footwear was last quarter but did you see much of a change in that particular business? And is it fair to look at footwear as sort of a leading indicator of consumer spending?

I’m not sure I agree with that. I mean, footwear, the big quarter for footwear is obviously back to school. That’s really their Christmas, so we saw strength in kid’s shoes and women’s shoes. Men’s shoes, not as strong, so that’s more of a need-based purchase, so I think it just continues to reinforce customers are buying for need. You know, when the weather got cold, our boot business got good. That was a big portion of the women’s pick-up.

I mean, accessories and footwear, I think both for the quarter and on a year-to-date basis have outperformed the company, so that’s true. But to be fair, we are -- we have historically [had a much lower market share] in those categories than we do in our core men’s, women’s, and kid’s apparel category so the way we think about that is there is more opportunity in those businesses for us to grow faster.

Okay. And then you mentioned that the South Central and Southeastern regions saw some improvement during the quarter, comped positively and attributed some of that to just more localized merchandising. I was just wondering if you could dig into that a little bit and give us maybe some specifics there in terms of what kinds of things you are doing. I mean, is this part of the -- just the overall push into more size optimization or is it something -- is there something more to it than that?

No, but we have had two key initiatives for the last two years as a company -- one of course has been to improve our customer service in the store. We talk about that every quarter. We talk about that constantly here internally but the second one is we recognize that the Southeast, South Central and Southwest markets have underperformed the company on a productivity basis and we believe some cases like California, the number of stores we had was a hindrance but we believe the biggest issue was that we didn’t tailor our assortments as effectively as we could have, and so that’s been the other strategic initiative. Don Brennan, who is our Chief Merchandising Officer, has driven that throughout the company and we have a lot of room to improve, so we are not at all declaring victory. We have more opportunity than we’ve achieved but we are getting positive results. So it is a positive for the sales.

And is there -- are there opportunities even in more established markets for more of that -- the Midwest and the Northeast, for example?

Well, I think we know the Midwest pretty well. We started here. It’s really that sort of -- I call it the crescent moon but it’s really from the Pacific Northwest through California across Texas and down to Florida -- that’s been the area of focus. You know, there’s obviously pockets in the Northeast and mid-Atlantic and Midwest that would sell Elle and Vera better than Chaps but I think we have a pretty good handle on those.

Okay, great. Thanks very much.

Our next question comes from the line of Erika Maschmeyer with Robert W. Baird.

With the expansion of Hang 10 and the rollout of LC Lauren Conrad and Mudd, are you finding that you are attracting younger customers and has that impacted your average customer age?

I think what we have tried to do with a lot of those brands is just be more meaningful broadly, so we are still heavily focused on our core consumer, which is kind of that -- we broadly say 25 to 54 but I think more specifically 25 probably to 44, so those are solutions for younger members of those families that we didn’t offer before but in particular, they have been developed because we recognize in many of those businesses that competition is not department stores and it’s not discount stores but in fact it’s specialty stores and we have to have a more robust brand portfolio and so some of those brands have been tailored to more aggressively compete with the specialty stores in the mall.

And then could you talk about the actions you are taking, your new technology implementation and your potential to improve your assortment by region?

Well, we continue to drive that. I mean, I think the team would say that technology is not a hindrance to us achieving better performance in those warmer stores. We have the technology to do so. We have the reporting structures and the ability to distribute and the size, case pack needs are addressed. It really is continuing just to reinforce with our merchandising and our store teams that each of these markets have a different need in terms of merchandise content and the relative value of specific brands, as Wes just described and things like Elle and Lauren Conrad is going to be a lot more impactful in certain markets than in others and we have to drive that through the process. But I would not consider technology to be at all a problem in that regard. I think it’s a help for us. It’s just continuing to build it. We still have a lot of opportunity to improve.

Thanks so much.

Your final question is from Dan Binder with Jefferies. Daniel T. Binder - Jefferies & Co.: A couple of questions for you -- November’s business -- excuse me, October’s business was probably limited somewhat by the lack of clearance inventory and I guess I’m just curious, given your inventory position now, what you think the limitations could be for Q4? In other words, how far -- if the business is there to do, how far above your comp plan could you go before inventory becomes an issue?

We have plenty of inventory going into November and December and clearance is a very small percentage of the business. And I’d be happy to have a lot less clearance in January because you guys would definitely like the margin results and the earnings results, so a lack of inventory won't be a hindrance to comps in the fourth quarter.

I mean, I think the -- I think our judgment is that the major impact in October was as you looked at our September sales, I think it was evident that we did pull up particularly in seasonal categories, seasonal selling in September that we might otherwise had done in October and so -- and we knew that and we tried to communicate that to people but naturally when we had a [5%-plus] comp in September, I think expectations started to run ahead of what the reality is. So a lot of it was just we pulled forward sales in September that might have otherwise been done in October.

Yeah, I know people were disappointed with the October result but if you just look at the year, it was our second best comp result of the year. Daniel T. Binder - Jefferies & Co.: Sure. And then two other questions -- I know you are always working on new stuff. Do you think we will hear about any new brands before year-end? And then secondly, you guys have done just a fantastic job on gross margin and SG&A, so naturally investors are going to wonder how high high can be and I don’t know if you are willing to review it but sort of longer term, what do you think the opportunities are for operating margin?

On the new brand front, I mean, we would typically communicate new brand strategies in our February fourth quarter conference call and I would plan on that happening and we do have ideas we hope to be able to deliver. I think our -- the consistent answer on really more operating margin than anything else is our immediate goal is to figure out how we get the company back to a 10% operating margin and we are highly focused on that internally through a mix of both margin improvement and SG&A leverage. I think Wes and his partners in our sales support areas are doing a really good job leveraging in SG&A and we are starting to get the kind of traction we would like to see. We already have had it in margin so we certainly don’t want to lose any of that but our immediate goal remains the same -- which is let’s get to 10%.

And then we’ll tell you after we get to 10. Daniel T. Binder - Jefferies & Co.: All right, great, thanks.

All right, thank you.

There are no further questions. Do you have any closing remarks?

No, that’s it. Thanks, everybody. Have a good weekend.

Thank you for your participation in the Kohl's Q3 2009 earnings release conference call. You may now disconnect.