Good day. My name is Chantelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kohl's Corporation Q2 2022 Earnings Conference Call. As a reminder, today's conference call is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. Mark Rupe, you may begin your conference. Thank you. Certain statements made on this call, including projected financial results and the company's future initiatives, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Kohl's intends forward-looking terminology 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 Form 10-Q for the first quarter of fiscal 2022 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. Forward-looking statements relate to the date initially made, and Kohl's undertakes no obligation to update them. In addition, during this call, we will make reference to non-GAAP financial measures. Information necessary to reconcile these non-GAAP financial measures can be found in the investor presentation filed as an exhibit to our Form 8-K filed with the SEC and is available on the company's investor relations website. Please note that this call will be recorded. However, replays of this call will not be updated. If you're listening to a replay of this call, it is possible that the information discussed is no longer current, and Kohl's undertakes no obligation to update such information. With me today are Michelle Gass, our Chief Executive Officer, and Jill Timm, our Chief Financial Officer. I will now turn the call over to Michelle. Thank you, Mark. Good morning and welcome to Kohl's second quarter earnings conference call. Since our last earnings call in May, as all of you know, a weakening macro environment, high inflation, and dampened consumer spending are having broad implications across much of retail, especially in discretionary categories like apparel. Given our penetration in these categories, this is disproportionately impacting Kohl's. Our second quarter results reflect a middle-income customer that has become more cost-conscious and is feeling greater pressure on their budgets. Therefore, we are seeing customers make fewer shopping trips, spend less per transaction, and shift towards our value-oriented private brands. We have responded to this dynamic environment, taking action to adjust our plans and adapt to a softer demand outlook. We've increased promotions. We are being aggressive on clearing excess inventory. We are pulling back on receipts, and we are managing expenses diligently. We acknowledge that many others are taking similar actions which will likely make for a more promotional environment in the near term. Our updated full year guidance contemplates lower sales and margin pressure landscape. We have navigated difficult retail environments in the past, and I am confident that we will successfully manage through the current uncertainty. We have the right long-term strategy and initiatives and a formidable foundation featuring a differentiated brand portfolio, strong value position, and a convenient and broad-reaching omnichannel platform. We are also continuing to make progress in our strategic transformation and now have nearly 600 of our stores recently refreshed and reflecting our forward vision as the leading destination for the active and casual lifestyle with Sephora as a key cornerstone. We are seeing outsized performance in these stores relative to the balance of the chain, and we are looking forward to continuing the rollout to reach 850 Sephora at Kohl's shops in 2023. Kohl's is a financially strong company with a proven history of prudent balance sheet management and significant cash flow generation. Our $500 million accelerated share repurchase underscores our steadfast confidence in Kohl's future and focus on creating shareholder value, especially given the current valuation of our company. As Jill will discuss in more detail, we remain firmly committed to the health of our balance sheet, and we will plan our capital allocation decisions going forward to continue to reflect this priority. With that perspective, let me turn to our comments on the quarter. Second quarter comparable sales declined 7.7%. We saw a benefit early in the quarter from spring seasonal selling. Though as we progressed through May and into June. It became increasingly clear that inflationary pressures were beginning to impact our customer spending, especially our middle income customers. June was the most challenging month in the quarter. In July, we took actions to drive demand, which improved the trend. From a channel perspective, digital sales were flat to last year, benefiting from higher conversion rates, driven largely by our implementation of a lower free shipping threshold to be more competitive. The Kohl's app accounted for 40% of digital sales in the second quarter, doubling in penetration in recent years. In total, digital sales accounted for 28% of net sales, up from 26% last year. Store sales declined 10%, resulting from less traffic and smaller basket sizes, primarily driven by the overall macro pressures I mentioned earlier. Stores fulfilled 37% of digital sales in Q2. Our private brands outperformed national brands for the second consecutive quarter with sales growth achieved in many of our key brands. This is another indication of our ability to fulfill the needs of our customers looking for greater value during this time. It's clear that there has been a significant shift with the consumer over the past few months, and we expect this to persist for the foreseeable future. As an organization, we are focused on ensuring we can navigate this period successfully. This includes our inventory management efforts, clearing out excess goods while also pulling back on receipts and being expense disciplined. While we do this, it's important that we continue to execute on our transformation strategy. Even amidst a very challenging backdrop, our transformed stores with Sephora are outperforming the balance of the chain. Now let me give you a little more color on Sephora. Our game-changing partnership with Sephora continues to deliver on its promise of transforming Kohl's into a leading beauty destination. We have successfully opened nearly 600 Sephora shops during the past year, including 400 in 2022. In the 200 stores opened last year, we have maintained a high single-digit percent lift relative to the balance of the chain. In the nearly 400 stores opened this year, we are seeing a mid-single-digit% sales lift, which is consistent with the initial performance in the first 200 stores. As these Sephora openings follow the curve of last year's openings, we would expect sales to accelerate in the months to come. From a product perspective in Q2, we saw strength across all beauty categories, including skincare, makeup, and fragrance. Top-selling brands have been the Sephora Collection, Fenty, Charlotte Tilbury, NARS, and Too Faced. We have acquired more than one million new customers since launching last August, which is encouraging given that this occurred in less than half of our fleet, many of which have just been opened for a very short period of time. The new customers are younger and more diverse and shop more frequently than our average customer. I am especially proud of the strength of our partnership with Sephora. Our collective teams work very closely together with the common goal of driving the business for both the short and long term. What we have achieved together in less than one year is remarkable, and we're just getting started. We see a long runway of growth ahead. As planned, we will open another 250 shops in 2023, taking our total to 850 2,500 sq ft shops Sephora presence across our entire store base. We are in the early stages of this concept and will keep you posted on this exciting development. We are also innovating and experimenting together to drive productivity and improve the overall customer experience even further. We're currently testing cross-company BOPUS, where purchases made on Sephora's website, sephora.com, can be picked up at Kohl's stores, creating an incredibly seamless and convenient experience for our customers. Next month, Kohl's will begin to accept any Sephora gift card regardless of where customers bought it. Later this year, we will significantly expand our holiday gifting assortment and increase our marketing investment, setting us up well in the 600 stores and digitally for a big traffic driver during holiday. We are excited about all that is ahead for Sephora and the impact this partnership will have on our business. As a reminder, we are just completing the build-out of this year's 400 stores, so the vast majority of Sephora's business impact is still in front of us. Let me now provide some more color on how other categories performed in the quarter, starting with active. Active is an important category for Kohl's, and it is a key component of our overall active and casual lifestyle vision. In recent years, we have invested significantly in strengthening our product offering, elevating our merchandising, and expanding dedicated space to active in our stores. These efforts drove strong growth in active sales, including more than 40% growth in 2021 and increasing it to 24% of our total sales, up from just 14% five years ago. During the second quarter, while active apparel performed better than the company with strong growth in our athleisure and outdoor offerings, total active sales underperformed the company due in part to supply chain related challenges in athletic footwear and the strong growth achieved last year. Turning to our women's business, sales slightly outpaced the company with underlying strength in areas where we invested over the past 18 months. We saw continued momentum in dresses driven by a greater emphasis both in-store and digitally, as well as in our more elevated casual offerings such as wear to work with growth in our key private brands of Nine West, Simply Vera Vera Wang, Lauren Conrad and Sonoma. Offsetting the strength was weakness in our juniors business, which accounted for a majority of the women's decline in Q2. We attribute the juniors underperformance to a portion of our juniors fashion assortment not resonating with our customer, which we of course corrected, and to the temporary disruption in the nearly 400 stores refreshed in 2022, where juniors were repositioned within the store. On this latter point, we are expecting the impact to improve as customers get more comfortable with the new layout, as well as enhanced navigation signage we are adding to these stores. Turning to men's, it also slightly outperformed the company in Q2, driven by the successful new brand introductions over the past year, including Tommy Hilfiger, Hurley and Calvin Klein. We also saw solid results in young men's tailored dress and big and tall. Outdoor continues to be a strong growth contributor in men's, with momentum in our key national brands, Eddie Bauer and Columbia. Given the success, we are expanding our outdoor brands to more stores this fall, including Eddie Bauer, Under Armour Outdoor and Columbia's PFG collection. Lastly, our home and children's business underperformed. The home category continues to normalize following strong demand during the pandemic. Our children's business experienced declines in the tweens, boys and girls departments due to softness in seasonal classifications and basics, as well as in toys and sleepwear, which were up against strong growth comparisons. From a profitability perspective, as Jill will discuss in more detail, the lower earnings relative to last year were primarily driven by the decline in sales and gross margin and the significant step up in investments in our strategic growth initiatives of Sephora store openings and store refreshes. As it relates to the back to school season, we are focused on delivering compelling value across key categories, and we are supporting this with promotional events and more targeted offers. To date, overall back to school trends are in line with our expectations. Before I turn it over to Jill, let me touch on the actions we are taking to drive shareholder value. As announced this morning, we entered into a $500 million accelerated share repurchase agreement. This underscores our confidence in Kohl's future and our focus on creating shareholder value. In addition, we remain firmly committed to our current dividend. With that, I want to close by saying that 2022 has turned out to be very different than we anticipated. The weakening economic backdrop and inflationary pressures have created headwinds for our customers, our industry and our business. We are leveraging our agility and responding with the customer at the center of our focus. Kohl's has navigated many difficult periods in the past, and I'm confident we will successfully manage through this dynamic period as well. I want to thank our incredible associates around the country for all you do. We have been challenged in many ways over the past couple of years, and this team continues to step up to meet every challenge with tremendous agility and commitment. I can't thank you enough for your dedication to Kohl's and for providing excellent service to our customers every day. With that, let me turn it over to Jill, who will give you more details on our financial results. Thank you, Michelle, and good morning, everyone. For today's call, I'm going to review our second quarter results, discuss our capital allocation actions, and then provide details on our updated 2022 guidance outlook. Starting with the second quarter results. Comparable sales declined 7.7% and net sales were down 8.5%. Lower store traffic and smaller basket sizes were the primary drivers of the decline. Although we did see an increase in average ticket, it was less than historical as our customers shifted towards our opening price point private brands. Other revenue, which is primarily credit revenue, was flat to last year. Turning to gross margin. Q2 gross margin was 39.6%, down 290 basis points from last year, driven primarily by elevated freight expenses, product cost inflation and increased promotional activity. SG&A expenses increased 3.4% to $1.3 billion, driven largely by investments in our key strategic initiatives. During the quarter, we invested an incremental $36 million to last year to support the Sephora store openings, store refreshes, and reflows. In addition, we incurred $9 million of expense related to the strategic review process. We also experienced increases in wages and transportation costs that led to additional expense deleverage. Depreciation expense of $206 million was $4 million lower than last year due to reduced technology capital spend. In total, our Q2 operating margin was 6.5%. Net income for the quarter was $143 million, and earnings per diluted share was $1.11. To summarize, the lower earnings per share relative to last year was primarily driven by the lower sales and gross margin and the significant step-up in investments in our strategic growth initiatives of Sephora store openings and store refreshes. Turning to the balance sheet, our inventory at quarter end increased 48% compared to Q2 2021. This increase was driven by lower than expected sales in Q2 along with three unique factors. First, $269 million of the increase was due to elevated in-transit inventory as we built in additional order lead times to ensure we met customer demand given the supply chain disruption. Second, $220 million of the increase was related to our investment in beauty inventory to support the 400 Sephora shops opening in 2022. Third, we continue to leverage pack and hold for late holiday receipts such as sleepwear and fleece, which added $82 million of inventory. This merchandise will be set in Q3 ahead of the holiday season. Excluding these three unique factors, our inventory would have increased 27% to 2021 and decreased 8% to 2019 levels. We have taken action to address inventory, including increasing promotions, being aggressive on clearing excess inventory, and pulling back on receipts. Given our updated business outlook, we now expect inventory to end the year up high teens as compared to 2021. Turning to cash flow, operating cash flow was a use of $86 million in second quarter due to lower sales and higher inventory levels. Capital expenditures for the quarter were $327 million, driven mainly by Sephora build-outs and related store refreshes. We are now planning for approximately $825 million of capital expenditures in 2022. Now let me give you an update on our capital allocation strategy and plans. We are focused on our strong balance sheet with the long-term objective of maintaining an investment-grade rating. We also remain committed to our current dividend. We will balance these overarching objectives while also capitalizing on unique opportunities to repurchase our shares at an attractive valuation, as is evident in today's announcement of a $500 million ASR. In 2022, and most notably at the end of Q3 as we build receipts ahead of the holiday. Importantly, we fully intend to return our balance sheet to a position of historical strength with an objective of leverage of 2.5 times. We will continue to focus our shareholder returns by prioritizing the dividend while also employing liability management to retire our 2023 bond maturities next year, totaling $275 million. In addition, we are assessing the current retail environment and leveraging a competitive process to determine potential opportunities to monetize a select portion of our real estate assets. As we have done in the past, we will focus on opportunities that will enhance our financial flexibility and maintain our healthy balance sheet. During the second quarter, we paid $64 million or $0.50 per share in dividends to shareholders. In addition, as previously disclosed on August 9, the board declared a quarterly cash dividend of $0.50 per share payable to shareholders on September 21st. We did not repurchase any shares in the second quarter given the strategic review process. For the full year 2022, we plan to return approximately $900 million in capital to shareholders through our dividend and share repurchase activity. Now let me provide details on our updated outlook for 2022. We are updating our annual guidance to reflect our year-to-date performance and incorporate continued uncertainty in the macro environment. We now expect net sales to decline in the range of -5% to -6% versus 2021. We expect sales to remain soft given the challenging economic backdrop. However, we do expect our partnership with Sephora to further contribute incrementally to our business with 600 shops open during the key holiday season. For operating margin, we expect it to be in the range of 4.2% to 4.5%. We expect gross margin in the second half of the year to contract similarly to our Q2 gross margin performance, driven by product cost inflation, an increased promotional environment, and elevated freight costs. Our guidance also assumes SG&A expense in the second half of the year to benefit from lapping last year's Sephora rollout expenses and a lack of holiday-based retention incentives this year. For the year, we expect SG&A expense to increase approximately 1.5%. For EPS, we expect it to be in the range of $2.80-$3.20. In summary, while 2022 has turned out quite differently than we planned, we are confident in our ability to navigate the uncertainty and continue to position the business for future sales and earnings growth. With that, we are happy to take your questions at this time. At this time, I would like to remind everyone, in order to ask a question, please press star one. Our first question comes on the line of Mark Altschwager with Baird. Your line is open. Good morning. Thanks for taking my question. To start out, can you talk about your confidence in the 7%-8% longer-term operating margin goal? I guess the environment and the 2022 outlook has changed quite a bit since you outlined those goals. Maybe help us understand the pieces that need to come together, both internally and with the external environment to make that possible. Mark, it's Jill. I would say we still have strong conviction in our long-term financial framework. We think it's the right framework that will run the company. I mean, this is obviously a moment in time. There's a lot of macro environment and negative sentiment around the consumer that's weighing down on our structure. I think 7%-8% is absolutely where we're gonna run this. Right now, obviously, working through the inventory is important and getting ourselves back in line from a sales perspective. I think the strategies we have in front of us with Sephora, and we'll talk more about that, obviously you heard from Michelle on the call, that continues to be a positive for us. We still feel great with the active performance that we're seeing, especially as we reflow that to the front of the store. I think as you see our SG&A expenses only being up 1.5%, so really working through that despite the big investment we made this year to roll out the Sephora shops over 400 stores. I think, you know, both Michelle and I and the leadership team all feel very convicted in running at 7%-8% long term, despite I think the moment in time that we're working through right now. I think it's the health of the financial framework that we've established that's really helping us successfully navigate these uncertain times. Thank you. Maybe just one more. From a capital allocation perspective, just, given the reduced sort of free cash flow outlook, why is the $500 million ASR still the right move today? You know, CapEx, it looks like you tightened up the plans a little bit for this year. Is $2.5 billion over the next three years still the right way to think about it? Or, have you made any adjustments to those plans, given the change in the outlook? Thank you. Sure. I mean, I think always our capital allocation starts with in the context of that framework. I think looking today at our valuation, we feel this is a very opportunistic time for us to buy back shares and really return that value to our shareholders. In terms of, you know, what you've learned from the process in terms of the value of either, you know, sale-leaseback at your stores or the FCs or the DCs and sort of how you might? What we can get. I would say right now we see industrials in terms of the DCs, e-FCs have a better rate than what we're seeing from a store perspective. Also key to that is understanding what that means from lease terms and the long-term components of those contracts. I think as that money comes in, does it get utilized for Women's, they're putting accessories and active into the basket, and we think that will only grow. I also think what's encouraging. This latest wave of stores, the 400 doors, which, you know, they're just opening as we speak, as we had expected. They're starting out just as those first 200 doors did. 10-year anniversary of the partnership, truly in terms of the business impact, we're in the very, very early days, and like I said, the upside is ahead of us. Great. Thank you very much. Thanks, Mark. Our next question comes from Gabby Carbone with Deutsche Bank. Your line is open. Hi. Good morning. Thanks for taking my question. On a three-year basis, your updated sales guidance doesn't really assume any improvement for the remainder of the year. Just was wondering if you could maybe dig into the trends you saw exiting the quarter. You mentioned you took actions in July to improve demand. On back-to-school, you said it's trending in line with your expectations. Just wondering if you can provide a bit more color there on the early reads. Thank you. Sure, Gabby. Michelle here. Thanks for the question. First to start with the quarter, I think as I said in my remarks, we actually did see July show some improvement from the earlier part of the quarter. June was our toughest month. We started with seeing some encouraging spring seasonal selling. Things really fell off in that kinda late May and into June. As we looked at the correlation to the inflationary pressures, that was having a massive impact to our business. We took a number of actions in July in terms of driving value. That's clearly what the customer wants, and the customer was responding. That was encouraging, and we recognize that the environment is gonna be promotional. It's gonna be very value-driven. That is reflected in our guide. In terms of the back half of the year, you know, our guidance would suggest that we'll be in that mid-single digit range. We're showing a, you know, call it modest improvement from the first half. That is Sephora. I mean, we are seeing the impact by Sephora, as I was just speaking to in the prior question. As those stores ramp up, as they're open, I mean, this will be our first holiday with 600 doors open. We're really excited about that. We have a lot of things planned. We're also being very prudent. I mean, we are in the discretionary category business largely. Beauty has proven to be quite resilient. Besides that. I mean, all the unpacking we've done with the customer is they're feeling tremendous pressure on their budgets as inflation has taken hold in more essential categories like food and gas, and they're spending less in apparel. So it's an industry challenge. It's also a big challenge for Kohl's. That being said, we're not gonna sit still. We're gonna show up. We're gonna be relevant. Like I said, value will be a key overarching message both for back to school and we get to holiday. We have great private brands that stand for value. A number of those outperformed, and we're showing positive comp brands like Sonoma or Jumping Beans in Kids. So the customer's going there and, you know, this is our second quarter where our private brands actually outperformed our national brands. All of those things, again, point to a customer that is under a lot of financial pressure, and we have to make sure we're showing up in a relevant way. They're clearly, and what we saw in the second quarter is fewer trips and less in their basket. It's important to note, as we made comments in the remarks, that we're seeing this largely in our middle income customers. Interestingly, in our higher income customers, we're actually seeing more customers, and they're spending more. So it correlates again to where the economy is creating, like I said, pressure, we're really seeing in a middle income customer. We're just being really thoughtful and prudent as we look at the balance of year and not expecting to see a massive shift in the environment. If that happens, great, but we wanna make sure that we can be relevant. As it relates to your question on back to school, you know, as I said, it's about in line with our expectations. We're still relatively early in the season. We're seeing strength in categories like backpacks, kids footwear, and those younger kid sizes. I'd say where we have not yet seen the pickup in our business in areas like denim, kids uniforms, or those older kid sizes. Again, a little bit of mixed results here in line with our expectations, but I think most importantly, we're doing a lot to drive that value message during the back to school season. Great. Thank you so much for all the color. Thanks. Your next question comes from Oliver Chen with Cowen and Company. Your line is open. Hi, Michelle and Jill. On the juniors front, you spoke about an opportunity there. Approximately what percentage of mix, and what do you see ahead for the opportunities to improve that as well as timing? Then Jill, on the inventory situation and the promotions and what you'll do to proactively clear, what should we know about timing and guardrails? There could be a customer that requires more promotions than you expect as well, given the dynamic nature of the environment. Thank you very much. Sure. Oliver, I'll take your question on juniors first. You know, I think there's two things going on. One is in our Sephora doors, we made a lot of changes and moved a lot of things around. I mean, all thoughtful. We had piloted it. Juniors was one of the areas that got a significant move. Again, to set context, the stores are doing very well. The actives are the front, et cetera, that's working. Juniors in particular, it moved off of the right front pad of the store into a new location. We are seeing a disruption there. The team is on it. They're adding incremental signage. We're doing some things around mannequins. The customer is, you know, going to get used to that new destination for juniors. It takes some time when you move things around in a store for the customer to get more acclimated to that. That was one. I think second, in operating with great urgency is that we didn't have the assortment right. There was too much fashion, not enough of the basics. Some of the fashion choices were a little too young, I would say. That's been course corrected. I'd say, Oliver, one of the things that has hurt us is with all of the supply chain disruption that's happened, we were not able to get in and out of some of those items. You know, as we look ahead on supply chain, we're already seeing that today where the time is coming back. Over the last, you know, couple years, 18 months, those timelines have gotten long. As you well know, as it relates to young women and juniors, those cycles can change pretty rapidly. We bought too much of some of the more fashion trend product, and the customer wasn't going there. I also think, you know, relative to some of the inflationary pressures, you know, one of the things we're seeing broadly about women's is this desire to have more of the basics or staples and things they can get a lot of use out of and flexibility as opposed to those fashion pieces. We've got to rebalance and the team's on it. In terms of inventory and promotions, Oliver, we're actively working down inventory. We've done that through cutting receipts. We've been aggressive on clearance as well as promotions. Obviously, as we go into the important holiday period, we wanna make sure we're still flowing freshness, and we have those gifting opportunities for our customers. We'll continue to watch that move into the holiday period. We do expect to be up high teens as we end the year, which actually puts us right back in line with where we were in 2019, and that's even with funding 600 additional Sephora doors. I feel good with the metrics and the moves we're making in terms of getting inventory back in balance. In terms of promotional environment, we are expecting a heightened promotional environment. I mean, holiday is always promotional. I think given everything we're seeing, as Michelle mentioned, around value, that's something Kohl's has always stood for. We've always been promotional, so we really know how to lean in here. As you see the guide on the margin, you'll see we don't expect it to get any better than what we saw in Q2, and that was really being aggressive through promotions in both July. As we go to the back half of the year, we will start lapping some of the freight costs, as we had mentioned in Q4. Freight today, although a dynamic environment, we are seeing some of those costs come down. They're still higher than last year, but then in Q4, we start lapping some of those higher costs. Although the margin isn't improving, it's gonna change buckets really from being more freight pressured into more of those promotions, and clearance activities to make sure that we can move into 2023 feeling good with the inventory composition. Very helpful. Best regards. Thank you. Our next question comes from Chuck Grom with Gordon Haskett. Your line is open. Hey, thanks. Thanks very much. Good morning. Just a couple of housekeeping things. Jill, can you hold our hands on how you're thinking about the comps in both the third and fourth quarter? Then, also in the second quarter, your credit revenue, I believe, was flat year-over-year, which was a big change from the first quarter. Can you just walk us through, I guess, why and then how you're thinking about that line item in the back half of the year? Sure. Chuck, I'm sorry. Can you repeat the first Q3, Q4? I didn't hear what you were referencing. Just the comps. Comps. How you're thinking about the comp cadence in the back half? Yeah. I would say we expect that Q4 should be a little better than Q3. If you remember last year, we had lacked inventory. I think we quantified about $250 million of a sales liability because we were out of stock, and we couldn't flow the inventory given the supply chain disruption that we were experiencing. This year, obviously, we feel much better suited. We're flowing those receipts. We've built in the time to ensure that we are gonna bring the receipts in timely. We've actually made a lot of proactive moves on how those goods were coming in, so we feel very set on bringing those in. In fact, you saw in-transit being up because we did write those orders earlier to make sure that we were flowing goods both for back to school and holiday on time. I'd say that's gonna outsize benefit Q4 as well as the ramp-up of Sephora. As Michelle said, the longer time they're open, the better we're seeing that performance. As we now have all 600 doors open, we continue to see that benefit. I think you'll see a little bit better benefit in Q4 for those two reasons in terms of that. In terms of credit revenue, I think, you know, over time, our credit customer has stayed incredibly healthy, and so we're seeing, despite sales down, a really flat credit customer. We've proactively managed the risk of this portfolio. We've done this in the past. In fact, Chuck, I've spent a lot of time studying back to the last recession, and we've managed through this with a pretty healthy portfolio because we managed the risk pretty proactively. As we've seen things move, we've been able to make those moves as well. I would expect that our credit revenue should stay relatively flat throughout the year. Obviously, we'll continue to monitor the environment and the consumer, but at this point in time, we feel very good with that health of the credit customer. Okay, great. Thanks. On the inventory front, the slide that you guys provide is helpful. On the 27% that you call out as core, how are you feeling about the currency of that balance right now given some of the changing consumer preferences that we're seeing in apparel over the past few months? Yeah. What I would say the two biggest components of that increase, and we called out the fact that they were lacking inventory, so we weren't able to really keep up with that, trend that we're seeing from a women's perspective. If I actually look at it versus 2019, it's still down double digits. Although we're up relative to. A big piece of that inventory increase is active. You know, obviously, active is a core strategy. We've made a big investment, especially as we move that active to the front of the store. We've expanded the space that we've given active. Quite honestly, active is pretty seasonless. When I look at markdown liability, it's not a huge fashion business, so it definitely has a longer life cycle, so it doesn't give me as much pause in terms of getting through the excess inventory. Those two pieces are two-thirds of the increase, and then the rest of it is really through the balance of the store. Okay, great. Thanks a lot, Jill. Our next question comes from Blake Anderson with Jefferies. Your line is open. Hi. Good morning. I wanted to ask a follow-up on that previous inventory question. You just talked about the categories. Are you anticipating a continued ramp in private label in the second half? Just curious how you're planning for private label versus national brands for the second half. Yeah. I would say we've seen proprietary brands outperform our national brands for two quarters. We know the customer is really looking for value, so obviously, we wanna make sure that we're gonna deliver on that, and that is gonna be through a lot of our proprietary brands. You know, we continue to see outperformance in brands like Jumping Beans, Sonoma, and, you know, Lauren Conrad. Those are the places that you'll see our store will continue to balance into. That's not to forgo the fact that we are seeing great performance out of our new brands like Tommy Hilfiger, Calvin Klein. It'll be a balance, but obviously, the merchants would move to where they saw the trend going. You will see that we'll have that proprietary brand, especially in that women's side of the business, obviously is much more proprietary driven, so we can feed into the value-oriented customer. Got it. That's really helpful. I was wondering if you could provide just directionally, at least, maybe, the different factors in gross margin between supply chain, promotions, and cost inflation. Didn't know if you could size those up maybe in Q2, and then how you think about those three different factors, how big each one is, in the second half. Yeah. I would say that freight and promotions were probably the biggest two pieces in Q2, freight being a big portion, and then obviously in July, becoming much more promotional to ensure that we were delivering value. Those were targeted offers to really look at and address the seasonal inventory that we had to ensure that we could continue to minimize the markdown liability as we moved into Q3, which is the normal time that you would clear that out. As we move into Q3 and Q4, freight will still stay a little elevated in Q3, although, as I mentioned, we are seeing costs come down there, but it's a pretty dynamic environment, and they are still higher than last year. In Q4, we start lapping freight, so it'll be less of a component of our headwind. We do expect promotions to remain heightened through the Q3 and especially into Q4. I think holiday is always outsized from a promotional environment. The last piece is just the cost inflation. We had mentioned to you that we expected cost inflation to start impacting us really Q3 and then into Q4. I think Q3 will be pressured off of cost, freight, and then as we move into Q4, I would say it's gonna be more about cost and promotions. Got it. Really helpful breakdown. Thank you. Our next question comes from Paul Lejuez with Citigroup. Your line is open. Thanks. It's Tracy Kogan filling in for Paul. First, I was wondering if you guys could kinda compare the conversion you're seeing at Sephora with the conversion you've been seeing over the years from the Amazon returns. I think you expected to get a better conversion from those Sephora shoppers, but just wondering if that's turned out to be true. My second question is, I was wondering if you were changing your strategy. I think you had said you were expecting to open 100 smaller format stores over the next couple of years, and just wondering if you're rethinking that. Thanks. Sure, Tracy, Michelle here. I can actually answer both of those. In terms of Sephora, I don't know if the right comparison is Amazon returns. Since you brought that up, I'd say we continue to be pleased with that partnership. We're actually seeing conversion continue to do well with those customers, and it's a great source of new customers for us. That continues. In our Sephora stores, what we do look at is how those Sephora stores are doing relative to non-Sephora stores. As I mentioned earlier, we are seeing really all the stores outperform the chain. Those first 200 are even higher. They're in that high single-digit range. Then the newer stores, the 400, are in that kinda mid-single digit range. Related, we are seeing new customers, we're seeing traffic, and we are seeing increased conversion. To your question, we're seeing better overall conversion with the traffic we have coming into those stores as they're buying beauty with Sephora and as they're adding other things to their basket. Really on all levels, as we've said all along, Sephora is a game changer for us. It's our number one initiative. I think in the spirit of the partnership as we look forward, Jill was talking about the capital investment. You know, this is a moment in time as it relates to the headwinds we're facing. The good news is we have a healthy balance sheet, we're financially strong, we can make those investments and really continue to have an unwavering conviction around our strategy go for transformation and how we're elevating merchandising and how we're moving things around the store and refreshing the store. We are going forward, kind of full tilt on that. Then as we announced today, we're working with Sephora in creating a concept that will add to the remainder of the stores, about 300, the balance of fleet. We'll have a Sephora presence across our entire store base and digital. That is very powerful because we'll be able to say at any Kohl's, you can come in and have a Sephora experience. That is news we're sharing for the first time this morning, and it's really exciting on our go-forward path. In terms of the small store strategy, Tracy, we're still convicted on those small stores. We've done a lot of testing. We feel good with where they are. We're also being balanced in our approach. We're looking for those markets that make sense. We're also taking into consideration the current market conditions. I would say we are still planning to open 100 stores over the next several years, but it will be paced and I think more of a ramp up towards those latter years versus in the beginning part as we kinda learn more on how to merchandise them, opening a Tacoma store, which is gonna look very different than any store that we've opened, much more locally relevant. You're gonna walk in, and it's gonna feel different than when you walk into a Kohl's store. really understanding how the customer reacts to those type of changes so that we can take those learnings and apply it when we start opening those more en masse. Great. Thanks very much, guys. Thanks. Our next question comes from Omar Saad with Evercore Partners. Your line is open. Thanks for taking my question. Most of them answered already. I was hoping you could give a little bit more color on the category performance. Sounds like Home underperformed. I know it sounds like your middle income consumer, that the color on the income stratification is great. But maybe across categories, are you seeing some of those COVID winning categories significantly underperform? Are there categories where you're seeing outperforming? And then I also wanted to ask Michelle, maybe you could talk about as we enter this kind of elevated promotional environment, you know, across the industry, do you think that down the road, the industry and Kohl's can return to a lower promotional level that we've enjoyed over the last, you know, year or two? Are we kind of back to that pre-COVID norm, constant promotions, highly hyper-competitive marketplace, as we just think beyond the current kind of situation and story, elevated inventory that we have had. I s there an opportunity for Kohl's and the industry to keep some of the margin discipline that you guys have experienced over the years? Yeah. Great. Thanks, Omar, for those two questions. I'll take those. First, to give you a little bit more color on our categories. Starting, you brought up Home. Two categories that underperformed, Home and Children's. I mean, those had significant outperformance, as you know, the last couple of years. We are seeing, like in Home, sort of broad-based challenges as it relates to that middle income customer, as you pointed out. That said, as we look to the back half, while we're doing a lot of things to make sure that we've got sharp price points and newness, especially for the holiday time period. Yes, customers are gonna have to be a bit more picky around where they are purchasing gifts and et cetera. We need to show up both with value and with compelling product. I will tell you on the home front, the team is bringing in a lot of newness across the board, in categories that we haven't played in that much, like outdoor recreation, to just give you an example. I think similarly with kids, you know, we're seeing some bright spots in the kids business today is in that younger kids and toddlers, Jumping Beans. We're seeing pressure in older kids, in some categories, I'd say like denim, maybe that will pick up as back to school continues on. But we're doing a lot of things, again, around that assortment. Then you take toys, and you know, has been tough the first half of the year. As you know, the business in toys is really the fourth quarter. The team has been working with all of our partners to make sure we're showing up with not only great value. With Lego, starting in October, we're doing some proprietary partnership deals with them, which will be great. We believe will resonate with our customers. Then in terms of top-selling toys on the toy side, two-thirds of our top items are gonna be new. I feel like as we look forward, you know, those categories which have had the biggest challenge in the front half, there's some good plans, but we're still going back to the guide. We're still being really prudent, because, you know, while we're gonna put our best foot forward, we also know that there are headwinds that are kind a bigger than us. I'd say on the footwear side, we're seeing outperformance in casual and call it athleisure brands like Vans. On the athletic, I think two things. One is we're up against, you know, we know some very big numbers by our brand partners. We still unequivocally believe in the active category. This is a point in time. It's normalizing. All our data is showing that, you know, the consumer is gonna wanna continue to dress in that sort of active and casual athleisure outdoor. We're deeply committed to that. As it relates to active footwear, we're up against that. And secondly, we've continued to have pretty significant supply chain disruptions on that. We're not in the right stock that we need to be. You know, it's probably gonna take us six-nine months to fully normalize that. Like I said, the team with our brand partners, they're all over it. As it relates to the apparel side of things, you know, as I mentioned on active, while the footwear has been tougher, our active apparel, including athleisure outdoor, that's outperforming the company. On women's, we talked about juniors being tough. The core women's business actually had quite solid performance and substantially outperformed the company. Areas where we've been investing, like dresses, elevated casual, so brands like Simply Vera, Lauren Conrad, Nine West, as they go back to work or go out, that's really resonating. Even categories like plus size, where we've made investments. Lastly, men's. Men's has been a steady, solid performer. We're continuing to see that on both sides. The private brands like Sonoma, as well as the new brands we're bringing in, like a Hurley, Eddie Bauer, and of course, Calvin Klein and Tommy Hilfiger. You know, really important for us to maintain that balance, show up with value overall, and be really relevant for the customer. So that was your first question. The second question on the promotional environment. You know, we're seeing a dynamic we just haven't seen before. I mean, certainly the consumer confidence, you know, 40-year high inflation. I mean, this is a very dynamic time, and I think all retailers are having to, like I said, show up in a relevant way. The business cut off very quickly. You know, we're working through inventory as are many others. As Jill alluded to and talked about, our inventory position, our core categories, that's, that's not our entire issue. We've got some one-time, which are good investments like beauty. When you look at the core, it perhaps doesn't look as dramatic as when you look at the total. That said, we've got to take care of it. We're clearing out the goods, we're cutting at receipts, and we are being more promotional. I do think, you know, things will normalize. None of us have a crystal ball. We don't know when that happens. I'd say for Kohl's, we are committed in our longer term journey of, you know, having a healthy balance of promotions, but importantly, price clarity, investing more in price, and overall elevating our portfolio, having that balance of private brands, but also national brands that the customer is, you know, paying a premium price. The apparel brands I just spoke to, and then clearly Sephora. I'll sum it up to say, you know, we feel like we're putting our best foot forward in the back half. We're being prudent with our guide. We have great confidence in our long-term strategy. We're seeing that play out as we open these Sephora doors. In the moment, we'll be agile and responsive to what the customer needs. Thanks for the color. All the best. Thank you. Thank you. Our next question comes from Priya Ohri-Gupta with Barclays. Your line is open. Great. Thank you so much for squeezing me in. Just wondering if we could speak a little bit about your cash balance. It looks like it's fairly low, and we haven't seen a level this low in quite some time. If you could first just speak to sort of where we should expect you to run your cash balance over the next two to four quarters. Secondly, given sort of the elevated cash use in third quarter, as you build inventory, what are some of the actions that you have in the short term, ahead of any potential real estate monetization? Thank you. Sure. Thanks, Priya. I would say, obviously, our cash balance was weighed on a couple of things. One is, as we talked about, the sales drop happened quickly in June. We're making receipt cuts, but obviously couldn't react as fast enough as the sales had been dropping. We will continue to tighten inventory, as you see that happening in the back half of the year. Specifically as we end the year, we said we'd only be up high teens relative to where we're sitting today. I think second, we obviously always prioritize investment. We didn't wanna cut back on what we see as our long-term growth strategy with Sephora. That is working. We're attracting new customers. Those stores are outperforming. A lot of the CapEx where we may have pulled back in the past, we wanted to lean into, given it was such a growth, we backed down expenses tightly. We're gonna continue to be aggressive from an inventory perspective. We will expect, as we mentioned, Q3 to be a little tighter than you have normally seen them because as you mentioned, it's a natural inventory build, and we're not gonna wanna cut that inventory, and we want that freshness. I feel very confident with the actions that we're taking. We're gonna build ourself back to a normal cash balance, a normal operating cash flow as we move into 2023. Great. Thank you. Thanks, everyone. Great. Thank you. Thanks, everyone for listening on the call this morning. Have a great day. This concludes today's conference call. You may now disconnect.