Good morning. My name is Toni, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2013 Earnings Release Conference. [Operator Instructions] Certain statements made on this call, including projected financial results, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Kohl's intends forward-looking statements -- forward-looking terminologies, such as believes, expects, may, will, should, anticipates, plans or similar expressions to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause Kohl's actual results to differ materially from those projected in such forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in Item 1A in Kohl's most recent 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 recording will not be updated. So if you are listening after November 14, it is possible that the information discussed is no longer current. I would now like to turn the call over to Wes McDonald, Senior Executive Vice President, Chief Financial Officer. Please go ahead.

Thank you. Good morning. With me today is Kevin Mansell, our Chairman, CEO and President. Comp store sales decreased 1.6% for the quarter and down 90 basis points year-to-date. Our average transaction value was down 80 basis points for the quarter and up 40 basis points year-to-date. Units per transaction increased in both periods, 1.1% for the quarter and 2.7% year-to-date. Our average unit retail was 1.9% lower for the quarter and 2.3% lower year-to-date. Transactions per store were down 80 basis points for the quarter and 1.3% for the year. For comparative purposes, to those retailers who report shifted comp sales instead of fiscal comp sales, our shifted comp for the quarter was basically flat, down 20 basis points, and year-to-date is down 1.2%. Total sales decreased 1% to $4.4 billion for the quarter and year-to-date were flat to last year at $12.9 billion. Kevin will give more color about our sales in a little bit. Our gross margin rate for the quarter was 37.5%, which was 60 basis points lower than the third quarter of last year and consistent with the low end of our expectations of down 40 to 60 basis points. SG&A expenses decreased $4 million or 40 basis points from the third quarter of last year but deleveraged 15 basis points. Higher late fees drove a $12 million increase in net revenues from our credit operation. Corporate expenses, which include IT expenses, decreased $11 million and leveraged for the quarter. Decrease was primarily due to lower incentive cost. Both store expenses and distribution costs increased $8 million for the quarter. Despite strong expense control and operational efficiencies, these businesses did not leverage for the quarter. Our marketing costs were $3 million higher than the third quarter of 2012. We continue to focus our marketing efforts…

Thanks, Wes. Let me start with sales. Comparable store sales decreased 1.6% for the quarter. E-Commerce sales increased 15% and contributed approximately 120 basis points to our comp. That increase is lower than our historical growth rate but is generally consistent with our expectations, given our re-platform this quarter. We fully expect E-Commerce sales to reaccelerate in the fourth quarter now that the re-platform has been completed. The West Coast region again reported the strongest comp for the quarter. We're especially encouraged with our results in California, which has the highest comp of any state for the year. We expect the loyalty program, which rolled out to California in September, to further enhance performance. The Northeast also outperformed the store average. All other regions reported low to mid-single-digit comp declines. Looking at our results by line of business. Accessories was the strongest business. Strong results in our beauty categories reflected positive impacts of our beauty remodel program and the new brand launches. Sterling silver jewelry was also strong. Notable performance in our home business included bedding, luggage, electrics and other soft home categories, such as rugs and pillows. Men's and women's both outperformed the company on strength in the active apparel category. Men's also saw relative strength in both the basics and the tailored and dress categories. In women's, contemporary sportswear was a strength. We are also very encouraged by our juniors business, which reported a very solid comp in October and, for the first time in many quarters, was consistent with the company's performance. Children's and footwear were below the company. Within children's, infant and toddlers was the strongest category and outperformed the company. Athletic shoes reported a positive comp, making them the strongest footwear category. Fashion boots are also off to a good start for the fall season.…

Thanks, Kevin. For the fourth quarter, our guidance is as follows: comparable sales, flat to down 2% on a fiscal basis; the calendar shift will affect the reported fiscal comp by approximately 160 basis points; total sales, down 2% to 4% -- as a reminder, last year's fourth quarter included an extra week -- gross margin improvement of 70 to 90 basis points; SG&A expenses are expected to increase 75 basis points to 1.25%; depreciation expense of about $227 million; interest expense of $85 million; a tax rate of 37%; share repurchases of 325 million; and estimated average diluted shares for the quarter of 213 million. Average diluted shares for the year are an estimated 219 million. This results in earnings per diluted share of $1.59 to $1.74 for the fourth quarter. EPS for the year is now expected to be $4.08 to $4.23 versus our previous guidance of $4.15 to $4.35. And as we stated in our earnings release, we will provide only annual guidance beginning in fiscal 2014. We'll be happy to take your questions at this time.

[Operator Instructions] Your first question comes from the line of Lorraine Hutchinson with Bank of America.

I wanted to follow up a little bit on the gross margin line. Can you just give us some clarity on how the quarter went and what caused you to be at the lower end of your gross margin guidance and then where you see the opportunities for the fourth quarter?

Sure. I mean, generally, I think our experience has been there was a slide in the range on margin, depending upon how sales develop. And as you can see, sales didn't develop in the third quarter the way we would have liked, so it didn't surprise us at all that margins were more near the lower end. The quarter flowed very inconsistently. As we mentioned at the end of the call, October actually was a very strong month, particularly the last few weeks of October, and we actually exceeded our plan by quite a bit. And of course, the mix of sales during the quarter, like the third quarter, has a lot to do with what margin rates we achieve.

And then outlook for the fourth quarter?

On the margin front?

Right. Where -- what are the puts and takes that we should expect? Obviously, there's a lot of opportunity because of the excess inventory from last year.

We had a lot of opportunity from last year given the dramatic markdowns we had to take, so we're assuming we don't have to take those. Having said that, we're also leaving ourselves a lot of room given what we feel is going to be a pretty competitive Christmas.

I mean, the biggest, biggest, biggest positive by far for us is that our inventories going into the fourth quarter, even considering lower-than-expected sales, are exactly where we planned them to be, and we still have the same exact expectations coming out of the fourth quarter. So as you know, we really were hurt in merchandise margin last year in the fourth quarter by very high inventory levels, and those inventory levels have been really well managed going into holiday.

Your next question comes from the line of Charles Grom with Sterne Agee. Charles X. Grom - Sterne Agee & Leach Inc., Research Division: When you dissected the comp miss versus plan in the third quarter, I'm just wondering what factors led to the miss?

Well, I mean, there's always multiple factors. But I think it's primarily all about traffic, didn't drive good traffic consistently throughout the quarter. We had a relatively good start. We had a phenomenally good ending, but the middle was weak. It was all about traffic. So many of the other metrics that we try to manage around average unit retail, around average transaction value, all were pretty much in line with what we expected. And the difference was all about driving traffic. Overall, our overall performance was also, as you know, negatively impacted by the re-platform of our E-Commerce site. That was -- we knew that was coming, and that was assumed to have a negative impact. But when you compare the relative performance of the company in the third quarter to the trend that we had, our outlook for the fourth, that was a pretty big factor. We had been running up about 30% or so in our E-commerce business. And then in the third quarter, we only ran up 15%, and it was all about the re-platform -- of the changes that were made. We're implying in our fourth quarter that there's an expectation that we'll return to our former run rates, and we're pretty confident about that. I'd say those are the big things: traffic, number one, by far, particularly in the middle part of the whole quarter; and second, E-Commerce, as expected, really slowed down through the re-platform, and it wasn't until the end of the quarter that it started to accelerate back up again. Charles X. Grom - Sterne Agee & Leach Inc., Research Division: Okay. And then just with the pickup here in the past, sounds like 4 or 5 weeks, is there certain geographic regions, certain product categories that have inflected positively to help you guys up?

It's been pretty widespread. Seasonal categories have been positive. I would say they probably led the business over the course of the last few weeks, including into November. But generally, it's just been about much improved traffic trends. That's really been the big difference. Charles X. Grom - Sterne Agee & Leach Inc., Research Division: Okay. And then as you do this loyalty card test in Pittsburgh and Texas and California, can you talk about the performance in the non-credit customer? And has that led to the low single-digit improvement that you spoke to?

Yes, I mean, I think we're seeing lifts across all categories. We look at 3 different buckets, our MBCs, which are best credit cardholders or Burgundies, and then bank cardholders or cash and debit. We're obviously seeing bigger lifts from the non-credit card customers. They're shopping more frequently. And it's a much lower base, but we're seeing lifts in our credit card customers as well. So that's given us a lot of confidence that the loyalty program will eventually be rolled out to more markets in the spring. We're trying to tweak a few things and then have a very well thought-out program, so when we launch it to the balance of the chain, we don't have to make a lot of changes.

I mean, the positive on loyalty is even in the markets that were in the original pilot. They -- it continues to grow. So that, to us, is a sign that it's engaging new customers. And as Wes said, that some numbers kind of backed that up, Chuck. Charles X. Grom - Sterne Agee & Leach Inc., Research Division: Okay, great. And then just the last question I have is with the addition of Juicy and IZOD. And I know that the game plan is to add a few more national brands over the next few years. And if you kind of look back, the mix of your exclusives in nationals used to be, 10 years ago, 80% national, 20% branded, and the gross is more closer to 33%. Today, the mix is closer to 50-50, and the grosses are 400 bps higher. When you think about the next 5 to 10 years for Kohl's, what's the right mix for the company? And how should we think about the implications for merchandise margins along the way as you gravitate towards a different mix?

Well, I think on the mix question, I mean, the honest answer on that is we don't know. We're going to have to find our way on what the right mix of high-quality, identifiable, credible national brands is for us to improve the traffic trend. I think the -- I mean, honestly, I think the customer will tell us that, that she'll dictate that. There's no question that the brand penetration of national brand is going up. It's going to go up, for sure. I think Wes would tell you that the math is that for each percent increase in penetration of national brands, there's a corresponding adjustment in the mix as a result of margin of 5 to 10 basis points is not a big deal. It's a very different business that we run today, Chuck, as you know, than it was 15 years ago, when we were 80% national brand.

Yes, I mean, it's probably closer to the 5, Chuck. Most of the -- we're private brands -- we're always going to have private brands. They're always going to be a significant part of the business. That's the biggest margin differential. I would suspect if national brands grow, penetration it will come out of exclusive brands, which have a much closer margin to the national brands.

Your next question comes from the line of Michael Binetti with UBS.

Could you help us on some of the diagnostics on the comps in the quarter? Could you help us think about how -- what the magnitude of October was versus the rest of the quarter and then maybe what October's comp would be, excluding the calendar shift, just so we have an idea of where those metrics came out?

Well, I think we will probably -- we'll probably going to try to stay away from talking about specific relative numbers to one another because we do look at the quarter in total. And of course, we're responsible for the quarter in total. But the shift was dramatic from our September trend to our October trend. I mean, that's the way I would characterize it, Wes. And it was all -- as I said, it was all driven by traffic, really didn't have anything to do with average transaction and really didn't have anything to do with average unit retail. But traffic trends just markedly improved. And as I said, they've continued to be very strong. And they've been fueled, I think, to some extent, by some seasonal weather. That's been positive for us as well.

We've seen some -- I guess, some industry data saying that overall mall traffic or retail traffic is very hard, particularly in the beginning of November, deeply negative. Have you guys seen at least positive trends in traffic in early November?

Yes. I mean, as we've mentioned, the strength we saw in October has continued into November thus far.

Okay. Do you think -- so all these initiatives -- we step back for a minute. All the initiatives that we're talking about, the national brands and loyalty, do you think these initiatives cause an inflection point in traffic for Kohl's specifically at some point in time? I don't think you'd be as excited to invest in all these things if they meant you were going to continue to be at the whim of what we all know are sluggish industry-wide traffic trends. I'm just trying to think through, as we look at the path forward here, when do you think that Kohl's traffic trends can break apart and say, we really -- we see the consumer embracing more national brands, the loyalty program hits critical scale, those kind of things?

Yes, I mean, many of the things that we -- first of all, let's be clear, we're disappointed in the third quarter results. They were less than we expected on the top line. Having said that, to be honest, I think the team did an incredibly good job managing all of the other metrics, gross margin, [indiscernible], expense control. As we look at all the initiatives that we've been talking about with investors, they are definitely all forward-looking, long-term kinds of initiatives, that our sense is there will be a gaining traction sort of forward move. Loyalty is working. It's only x percent in the stores, and it's only been in place x percent of the time. The national brand refocus has literally just begun, and that's going to take some time to get hold. The new national brands we just spoke about, don't even hit our assortment till next year. Our E-Commerce, particularly omni-channel, efforts took a hit in the third quarter, which we knew was the right thing to do because it now allows us to accelerate the growth way into the future. And we didn't have the capability to that given the platform we were on before. We talk about beauty in 280 stores sounds like a lot, but the 280 stores happened essentially in the third and fourth week of October. It literally just took place, so it hasn't had any impact yet. The West Coast, particularly California, that has been a pattern that's consistently grown over the course of the year. And I'm really optimistic about that because, as you know, we operate more stores in California than any other state in the country. And then many of the concepts, both in the marketing and the engagement side, that our new marketing and customer service…

Your next question comes from the line of Neely Tamminga with Piper Jaffray.

If I could ask just 2 questions here. Kevin, for you first, on the re-platforming. It seems like you guys, obviously, started to see some business disrupt and then also start to improve. Are you guys already tracking back up to your historical run rate post the re-platforming? And then what specifically, from a strategic perspective, are you looking to do most out of that re-platform for 2014? Is it about the mobile side of your business? And then I have a follow-up.

Well, the re-platform dramatically impacted the business in the quarter in total, and it most impacted the business, I think, Wes, in August and September.

Yes.

By far. And as we've finished the re-platform, and then all the changes that were necessary to tweak it, to get it to operate most effectively began to take hold, the improvement in the business, primarily as driven by both traffic and conversion improvement started to occur. I think the re-platform really is another one of these initiatives, as I just talked about with Michael. It has to do with the future. If we had not re-platformed, we were not going to be able to reach our full potential online. And the re-platform gives us that potential to now drive forward. So it's not a fourth quarter initiative, it's a next-3-year initiative that just went through. And as I said, I mean, it wasn't a surprise. We're doing the re-platform and we knew it's going to hurt our online business, but our expectation is, as we go into the fourth quarter, the sales trends that we had pre-re-platform will reemerge.

And then if you could -- if you guys could talk a little bit about the loyalty. I don't if you indicated your plans for rollout for 2014, but it seems like it's going well, you're pleased with it. I mean, could we see balance of chain rollout for Q1 next year?

No, it definitely wouldn't roll -- I mean, we don't have the plans finalized. In total transparency here, the thinking is we'll add more stores in the first quarter. Michelle has been onboard for about 3 to 4 months, and she thinks we have a great platform to work from with loyalty. I think she's excited about the fact that loyalty is in place. But she also thinks it needs to be changed and adjusted and become much more engaging with the customer. And she has some very specific ideas about that, and that's going to take some time. So I think you're going to see just further rollouts next year. I'm not willing to commit that we'll have it in the whole company by the end of the year. I'm not saying we won't, we may, but it's definitely going to be a different loyalty program than we currently have today.

And last, just real quick on the inventory, so if I heard you correct, your inventory in dollars per square foot at store level on an adjusted basis were down 5%.

Yes.

So I was just trying to dig a little bit more into the quality of the content of the inventory. I mean, obviously, your seasonal carryover is down, from a fall perspective. So just wondering if you could give us some other metrics around whether or not -- the businesses that are doing well, like juniors inflecting here positive for the first time and women's active doing very well. Have you fed the businesses that are doing well and starved the ones that aren't? And can I even ask, are you going to have enough inventory to drive the top line for Q4? Maybe you can give some perspective.

No, yes, I mean, we had a huge excess of inventory last year, so having enough inventory to drive a comp in the fourth quarter won't be an issue. Yes, I mean, that's what you do. You feed the businesses that are working well, and you cut back on the ones that aren't. We cut a tremendous amount of receipts out for fall, as we mentioned on the call, down double digits, and it was very significant, while feeding the replenishment businesses in the businesses that are working. And our plans are to have a much stronger spring transition, especially in model hot markets, as we exit holiday and move into January and February for next year. So I feel like our inventories are going to be in a good place, and we'll continue to make progress. I would expect our inventories to be down sort of low to mid single digits at the end of the quarter, depending on where we end up on the comp. And then generally, the quality of it should be a lot of better in terms of a lot more spring transitional receipts.

I mean, we had the worst case scenario. Going into last year, we had exceptionally high inventories on a historical basis. We had aggressive assumptions on sales increases in the fourth quarter, and they didn't materialize, which led to massive markdowns late in the fourth quarter, which impacted merchandise margin a lot. I think what Wes is saying, we're going into this fourth quarter with lower inventory levels than last year but, more importantly, significantly lower on fall and holiday. And receipts as planned for the fourth quarter are actually up on spring receipts [ph]. So I just think -- our feeling is it's not only about the lower level and the quantity being more right, but it's also about the mix.

Your next question comes from the line of Kimberly Greenberger with Morgan Stanley.

I have an inventory question, and I just wanted to ask a little bit more about the category performance. You listed a number of things that actually performed well in the quarter, including accessories, beauty and then some items within home. With the negative comp, I'm wondering, what were the categories where you fell short of your expectations? And then for Wes, on the inventory, it sounds like your accounts payable to inventory balances are down, and that would suggest some aging inventory. I'm wondering if you can just update us on the aging of the inventory and if you feel like you've got enough new fresh, interesting receipts here to drive business this holiday.

Yes, I guess, I can take the inventory question, and maybe Kevin could take -- as I've mentioned a number of times, we've cut billions of dollars of receipts out of -- in terms of out of retail. So hundreds of millions of dollars of receipts at cost in the third quarter because we bought way too much on the apparel side and accessories side last year. So we rightsized our quantities from that perspective. And the other thing that works on accounts payable, when you have struggles on margin, you get better allowances from vendors, and those are actually up over last year. So combination of those 2 things is why our AP is less at the percent of inventory. As far as sales go...

In the product, I mean, first of all, don't forget that we had a negative comp, so all of the relative performance is off of that negative comp. So when we tell you that the business is better or worse, it's off of that number. The categories that did not perform to the company and underperformed to the company included children's. Children's was way well under, I think, the company average. And footwear, in total, was well under the company average. The athletic footwear business, actually, I think, was better than the company. In fact, it had a positive comp. But the non-athletic to casual footwear category was very, very weak. So I would probably call out children's and footwear as by far the weakest performing business relative to the company having a slightly negative comp. In terms of strength, we talked about a couple of the categories that you mentioned. One that we also mentioned, which only ran with the company, so it did not perform but is definitely improving a lot, is junior. Juniors ran with the company, which is not that exciting on the surface, but given the fact that we've had historically really underperformance in juniors, that's a positive thing.

Your next question comes from the line of Daniel Binder with Jefferies.

It's Dan Binder. Just I wanted to have a point of clarification. On the re-platforming, I think you said earlier that, that contributed to the comp miss, but you also said that it decelerated as expected. So I just wanted to understand it, while you expected it to decelerate, did it decelerate more than you expected, contributing to the comp miss? Or it just seems like you had a bit of a contradiction there.

Yes, no, I can clarify. We assumed in the guidance we gave for the third quarter that there would be a lower increase in E-Commerce sales, and that the lower increase did materialize about to the level we expected. If you look at the quarter in total, though, and just think about the performance of the company in the previous quarters, E-Commerce was a big positive contributor to our comp. And naturally, with a much lower increase this quarter, it wasn't anywhere near as important to our comp. So we pretty much made our E-Commerce plan for the quarter. It just was a much, much lower increase.

And then the other question was around these calendar shifts. In the last call, you called out the 150-basis-point hit to Q4 from the calendar shift. You didn't call out the Q3, and that ended up being fairly substantial, too. Was that a surprise?

No, I can do math. It wasn't a surprise. We just didn't perform as well as we would have anticipated coming off of relatively weak third quarter last year. And the reason I gave the shifted comp was for clarification because there's -- some people report fiscal comps and some people report calendar comps. I wanted to give you guys a flavor because of the people have already preannounced their sales, and they've -- they announced it as a shifted basis.

Understood. And then on the loyalty program, just curious, as you looked across the different markets that you have tested it in, is the list that you're seeing fairly similar or does it differ much from market to market? And can you expand a little bit on what Ms. Gass has intended to add to this program to make it better?

Well, the lift differential is not significant. It's 100, 200 basis points, really, difference market-to-market. And as you know, in short periods of time, that can often have to do with something else -- the market overall might not be performing. I think the honest answer on Michelle's thinking on loyalty is that it's evolving, and she knows she's got a great platform, and she knows she's got a tool to engage, and she's got some experience that has taught her the right ways to do that so that it's not about only giving a better deal or a better price or a better value, but it's about engaging on many other platforms. And I think she's going through the process of thinking about how do we do that most effectively for Kohl's? Or what are the triggers that we get people excited about joining loyalty beyond the obvious trigger, which is, hey, I can get a better deal by doing it. And so she's -- I think she's evolving her thinking on that, and my expectation will be we'll probably try out different things.

So one more, if I could sit on brands. You have not a lot of brand introductions recently. It seemed like it was a bit of a challenging task. And now you've come up with 2 pretty good brands, I mean, I'm just kind of curious, what's changing in the conversations with these brands that allowed you to get these 2? And do you expect to have many more behind them?

Well, I think, really, most of the changes, really, in terms of our -- the insights that we've learned by the results in our own traffic trends, that the insights have clearly indicated a need to strengthen the portfolio of national brands, that we have to restore the level of credibility customers have with the value we give. And so we're just being much more proactive, Dan, on our side, reaching out, trying to identify the white spaces, brands that would make most sense in each of the categories. As you can imagine, we're working with a sense of urgency on that. I would expect to have new brands consistently. So this is not going to be a one-quarter thing. I would expect to be talking to you about this issue in February, at the end of the fourth quarter, as well. So I think most of it is on our side. And then naturally, as brands see brands launching at Kohl's and the way in which we can do it and the commitment that we'll make to delivering a credible presentation and the aesthetic of the brand, that gives other brands more confidence that it might be the right thing to do for them.

Your next question comes from the line of Liz Dunn with Macquarie.

Just a follow-up on the E-Commerce re-platforming. So I -- just like your site is down right now. So is the re-platforming done or -- and will there be any carryover impact on fourth quarter? Because I thought you said that things would -- that this would better for the fourth quarter.

It will be. The site's down for planned maintenance. We -- it's our last stress test before we go into peak season. And we moved it a little bit forward, so people could use our Kohl's Cash that was expiring at midnight. And that's -- it should be back up here briefly. It was scheduled to be up around 10:00.

Just the re-platform is done, and it's very effective, and it's working, and it's going to allow us to maximize sales in the fourth quarter. We're really confident about that.

Okay. And then setting aside the re-platforming, where do you currently stand on the profitability of the E-Commerce business? I know that's something you've been making some progress on.

Yes, I mean, the way we look at it, I would say we're still in the mid-single-digit operating margin range. We think that a couple of things that are working for us going forward will help us with that. Shipping costs, as we roll out ship-from-store, should be reduced because you won't be shipping across zones, so that should be a benefit. And we have our fourth E-Commerce fulfillment center up and running and automated this year. Last year, it was mostly manual. And that should help us. It's the optimal number of ECs you need to minimize your transportation costs, so that will help on the shipping cost. And we're starting to get some traction in terms of seeing some apparel growth faster than home. Home has been a bigger part of the business which carries a little bit lower margin. But as we get more scale, I think we should start to do a little bit better on the operating margin line. But I think it will be difficult for it to be the same operating margin as brick and mortar.

Okay. And then finally, I know you're probably sick of this question, but to the extent that J.C. Penney was able to pull off a strong positive comp for the fourth quarter, would you view that as a risk for you guys? Or do you think, since you didn't get a lot of the share, it's really you're kind of operating in a different -- with a different customer base?

I think it looks to me like the latter. Just having gone through the 18 months of their change and transformation and the modest, to say the least, impact it had on us, I would expect the same -- I mean, kind of going the other way. And even as they've become a more promotional store in the very, very recent past, the differences in performance on our stores relative to their stores by trade area, it's just negligible.

Your next question comes from the line of Stephen Grambling with Goldman Sachs.

As you think about the new beauty assortment, can you just talk about, one, I guess, how that basket compares in the beauty shop versus your average? And then is there still an opportunity to get more brands as you demonstrate success with the rollout?

I think it's just too early for us to give you any commentary that would be any good for you on the beauty baskets. We're just kind of looking at a business that was -- the reconstruction, the new service model and the delivery of the new brands, all basically happened in October. And most stores were not set until the last week of -- third to fourth week of October. We just know that, initially, the results look really, really good. We've had a big first in sales in beauty. And of course, it depends on which of the 3 types of environments a store has as to what kind of increase we're getting. I think that the beauty initiative, similar to some of the other initiatives we've talked about, is a long-term initiative. And certainly, there are, certainly, suppliers who are probably more in the wait-and-see mode. They'd like to see what the environment really looks like. They'd like to see what the results really are. They'd like to experience the customer service levels that the brands that we do have get. And given those results, I suspect, will be more or less open to considering distribution at Kohl's. I would tell you that in the environments we've set, they're very well done, and they're being very well serviced, and the results are really good.

That's very helpful. And then a quick follow-up on the non-credit card customers. You did mention that you're engaging new customers, so can you talk about how maybe that basket compares to the credit card customers, both in terms of categories and then also just the sheer size?

Well, the basket for non-credit card customers is always going to be smaller on the average. Our averages by default of credit card customers' basket is higher. It's really -- the non-credit customer is really more about visits. These are new visits. And so regardless of what their relative basket size is on the visit, it's adding a visit that we weren't getting before. And what we're really focused on is just customer acquisition. And so getting more customers in the door has consistently been the challenge, and we know that that's where our attention has got to go here. And we think loyalty, it's not the only tool by any stretch of imagination, but it's a key tool to do that.

And understood on the lower basket. But I guess, relative to the non-credit card customers who are already existing, I guess, is my question and also on the categories just as a follow-up, are there specific categories that they're being drawn to when it's a new customer?

I don't think either of us probably have the answer to that. I don't.

Yes, I mean, the basket for a credit card customer is roughly 10% higher than a bank card customer. But in terms of mix, we've looked at it, there's not a significant mix difference. I'd say new customers are more prone to buy our national brands, which is sort of a reason why we're using that strategy to get more new customers.

That's very helpful. One last one, if I can, just on CapEx. It looks like there's a fairly large increase in the fourth quarter. Is there something specific driving that? I think you referenced IT maybe.

Yes, most of it's related to IT projects that will get installed then. So that's really it. We're also closing on some doors for next year. We have more spring stores next year than we had this year and a couple other non-retail or -- yes, non-retail CapEx projects that we're working on so...

Your next question comes from the line of Dana Telsey with Telsey Advisory Group.

Can you talk a little bit about -- on the expense side, you mentioned that store expenses and distribution costs increased for the quarter, that they didn't leverage; and marketing expenses, $3 million higher. How are you thinking of that for the fourth quarter and going into next year? And where are you on the tally for share buyback this year?

Well, on the share buyback, we should be, if we buy the 325 million, somewhere around 820 -- between 825 million and 850 million, I think, so a little lower than what we thought. We do all of our share repurchases on a 10b5-1 plan. And we can adjust that in the last month of the quarter through the earnings call. So when the stock got higher, we, obviously, in the plan, have bought less. So that's why we fell a little short of what we wanted to be in the third quarter. And in terms of expenses, when you're -- if you're adding new stores, your expenses are going to go up for stores. And distribution, most of the distribution expense increase was related to E-Commerce. Some of the store increase was related to payroll, especially with the beauty rollout that we had, as Kevin mentioned earlier. Marketing expense is up slightly. It leverages on a year-to-date basis. But we're investing a lot more in marketing in the fourth quarter, which is why you see the expenses go up in the fourth quarter.

Your next -- your final question comes from the line of Paul Trussell with Deutsche Bank.

Kevin and Wes, you've spoken about increasing the marketing spend. And I just wanted to maybe have a discussion about choosing to go kind of that route versus the actual discounting or amount of promotional kind of intensity that we're seeing in the stores of your peer group. How do you kind of think about advertising more versus actual price points and providing value on the products, especially as we head into the holiday period?

I mean, I think generally, Paul, that all of the research and the insights that we gathered from that research have indicated that we don't have a problem at all with customers on pricing credibility, on being a low-priced leader, on offering great sales, on offering big discounts, on offering great value. So spending more, both in the past and even in the future, against that would not make a lot of sense based on the results that we've gotten in the past and the research that we've done. What is lacking is more customer engagement. We're not gaining enough new customers. And I think that has everything to do with reaching them in a different way, evolving our message, which we're just beginning to do, and I would expect it to evolve a lot as we go into 2014, and reaching them on new platforms more aggressively. So we mentioned digital as a specific example. We mentioned television as another. Not that we don't advertise on television, we always have, but we are doing more on the integration side and more what I would describe as breakthrough kind of advertising. I think if Michelle were here, she would talk to you about being more disruptive in the marketing that we do. And so some of the things like the American Music Award effort, which I think is going to be very unique as the reach of that is going to go way beyond just the people who see the spot and our advertising on the NFL on Thanksgiving Day, these are new venues for us. So we're very convinced that the changes in our marketing are much more important than spending that money against lower prices because we're already where we need to be on pricing.

Yes, I mean, from an AUR perspective, I think I mentioned on the call, we're down about 2% for both the quarter and the year. I would expect our fourth quarter AURs to be up a little, but that's only because of we should have a lot less clearance. Our out-the-door price during the competitive holiday season should be at or below last year's.

Okay, that's helpful. And then maybe just touch base quickly, just kind of on the overall holiday kind of merchandise strategy as well. I mean, I noticed in the Black Friday ad, I mean, the first few pages are certainly full of kind of non-core items, such as toys and electronics and TVs and DVDs, et cetera. I know inventory levels are down overall, but can you maybe just kind of give us some color on where you stand on some of these kind of gift-giving niche kind of holiday specific items versus the apparel?

Yes, sure. I mean, it's along the same items as what I just spoke about on an overall basis, which is to try to surprise our customers, to try to give them something different and more unique. If you looked at the Black Friday ad, you probably also have noticed that there are items that are only available in-store, and that's something new for us, so that, that customer gets something very specific and unique. So on that, that all came out of and was informed, obviously, by our own results last year, but just also the research that we've done.

Yes, and our -- we've always had a big toy business. It, obviously, gets exacerbated in the fourth quarter. But last year, we ran a 25 comp in toys, so it's a big business for us in the fourth quarter. It's a big business for us, and we expect it to be a big business again in the fourth quarter.

Great. And then just my last question is, the guidance before Q gross margins was tweaked to 7 -- up 70 to 90 basis points. If there was to be upside to the fourth quarter, could you just kind of highlight where you think that would come from?

In my mind, the upside for the fourth quarter is on the top line. That's where we're focused on, all these new initiatives. The marketing strategies that are a little different. We're focused on exceeding that, and we have assumptions in the fourth quarter plan that we think are sensible given the trend of our business, but we're focused on upside on the top line.

And that was your final question. Do you have any closing remarks? Ladies and gentlemen, thank you for your participation. This does conclude today's conference call. You may now disconnect.