Oliver Chen: Okay. Great. Tom, a follow up on the merchandising brands around Sephora. What are the leading strategies to synergize and get the pickup from the tremendous growth you’re seeing at Sephora? And related to that women’s and younger women’s clothing and apparel, would love your thoughts on rebalancing and the brands and the strategy there about what will it take to get sustainable growth with that younger customer?
Tom Kingsbury: As far as brands go, we’ve been looking at a lot of different brands that would compliment the Sephora offering. We’ve been going — Nick Jones, the chief merchant. I have been going to New York pretty much every week now looking for this. And we haven’t made any real decisions yet. But there is opportunities out there to bring other things in. But we think we can get some of the Sephora business with the brands we currently have, and we can change the offering. We can have more prints, more color in the assortments. I mean, we don’t have to radically change the vendor mix to capture this. But we are looking at the young women’s business. We really feel that that could be an opportunity for us as well as you just mentioned.
So there’s plenty of things that we can work with in our current brand portfolio. And then we’re going to — we’re looking for other brands that to add over time. I think the other thing that could be very good for the Sephora customer is our expansion of home decor and gifting. We really think that’s in line with that customer as well.
Oliver Chen: Thank you. Best regards.
Operator: And your next question comes from the line of Mark Altschwager from Baird. Your line is open.
Mark Altschwager: Good morning. Thanks for taking the question. Tom, any change to your views on the macro consumer backdrop versus a few months ago? You’re reiterating the guide, the environment’s obviously pretty dynamic and the guide allows for a range of outcomes. So just curious if you can share any additional thoughts there. And then Jill, gross margin, I noticed you didn’t call out the clearance shift as a factor impacting gross margin this quarter. That was a little bit surprising. Just I guess any color you have there would be helpful as well. Thank you.
Tom Kingsbury: Well, I think the macro environment continues to be challenging for our customer as I mentioned in prepared remarks. That’s a reason why — we’re really focused on delivering as much value as possible, because obviously, that customer’s has less money to spend. We’ve brought — we’re doing the key value items, bringing goods in at competitive high volume pricing to deliver more value to the selling floor as well. But we’re going to just really work hard on making sure that we have as much value as we can have. We’ve already started that and it’ll just continue through the third and fourth quarter and — but it’s critical that we deliver the value for them.
Jill Timm: And then in terms of gross margin, I think we did actually take all the clearance mark that we anticipated. I think a couple things that helped us set that. One is, as we talked about we were able to take out the promotions. The ones that were really the stackable ones, the ones that we didn’t see have a lot of impact to our top line. So as we were able to benefit from less promotions, that helped us offset some of the clearance. And I think the bigger factor is our inventory was down 14%. So as we look at the content and the currency of the inventory, we feel very well positioned as we move into the back half of the year. And so we were able to clean up what we needed to. But I think a lot of the efforts and disciplines that Tom has instilled in the merchant organization really took hold quicker than we anticipated.
And the discipline around inventory management, receipt management, and just the agility to chase really benefited us more than we anticipated into Q2. And we expect that to continue to benefit us the rest of the year, which is why we’re expecting our margin to grow both in Q3 and Q4.
Mark Altschwager: That’s helpful color. And then just a quick follow up, August to date off to a good start, should we read that as tracking ahead of the down 5% Q2 comp rate?
Jill Timm: I would say we’re pleased. Obviously, if you look at the quarters, we had talked Q2 in May and we used the word slightly below. You can see that June and July obviously were better than that. And I would say we feel good with the start we have in August. So yeah, I would say we’re definitely trending above that.
Mark Altschwager: Great. Thanks again.
Operator: Your next question comes from the line of Matthew Boss from JP Morgan. Your line is open.
Matthew Boss: Great. Thanks. So Tom, maybe given progress that you’ve made with inventory and the balance sheet, how best to think about category opportunities or the timeline you see from here to reach an optimal assortment? Or maybe said differently, do you see the opportunity to return to top line growth in 2024 as you just consider the macro versus all of these micro initiatives that you’re putting in place?
Tom Kingsbury: I would think that in 2024 we could potentially get back to positive. That’s obviously our objective overall. And the categories, I’ve really touched on a lot of the categories before. But the one thing about it which makes it exciting is the fact that there’s some — there’s categories we’re just underdeveloped in. And if we can just capture those opportunities, it should help position us for growth in the future. Again, home decor, pet, gifting, impulse, all that things that we’ve been talking about will really help us to get there. If every business was in the right penetration, it’d be a lot harder. But we just have these really low hanging fruit in terms of business that we can capitalize on and really help us move it forward quicker.
Matthew Boss: Great. And then maybe a follow up for Jill. So with first half of the year gross margin, I think more than 100 basis points above 2019. I guess how best to think about gross margin structurally from here if we think relative to 2019 levels? Or maybe asked differently, is there a ceiling to the 36% to 37% gross margin target longer term?
Jill Timm: I think right now we just feel very comfortable working within 36% to 37% range. Obviously, depending on where we see assortment moving in and out. Obviously, Sephora is a gross margin driver. We think home decor and impulse can definitely be benefits as well from an assortment perspective. So there’s definitely a mixed component to it as well as then the digital growth. We’ve been getting some tailwinds as digital has softened, but if we can continue to grow that business, you’ll see cost of shipping come out. So I think we feel great that we’re operating within the 36% to 37%. That was really the long-term plan that we outlined, and I think that’s really where we feel most comfortable, that we’re able to still deliver the value that our customer is used to getting from Kohl’s in that margin range.
And then also bringing in some of these new white space opportunities that Tom has outlined to get the top line growing. So I think our model works from a long-term operating margin with a small amount of top line growth. That’s really the big focus. I think we feel great with the margin that we’re putting out this year. Our SG&A disciplines are there and will great — gain great leverage off of just a small amount of top line growth. So that’s really the focus, I think, from a long-term perspective.
