Jill Timm
Thank you, Ashley. And good morning, everyone. I'll provide details on our fourth quarter performance and then discuss our guidance for 2025.
Net sales declined 9.4% in Q4 and 7.2% for the year. Comparable sales decreased 6.7% in Q4 and 6.5% for the year. The variance between net sales and comparable sales in Q4 is primarily due to the 53rd week last year, which we previously stated was worth $164 million.
From a channel perspective, our store comparable sales declined 3.1% in Q4, and we're down 5.6% for the year. Store sales benefited from strong average transaction value and saw improvement throughout the quarter with January having the strongest performance.
We experienced underperformance in our digital business during Q4, with comparable sales declining 13.4% in the quarter and down 8.7% for the year. Digital sales were pressured from softness in home, particularly in legacy home, which over penetrates into our online business.
We also saw headwinds in our digital conversion in Q4. Part of the conversion headwind was due to an online inventory suppression issue that impacted our availability. We've corrected this issue and are seeing an improved conversion and performance quarter to date.
Turning to line of business results. Nearly all lines of business improve their comparable sales performance versus Q3. Sephora continued to be a strong sales driver, with comparable beauty sales increasing 13%, and acceleration from the third quarter.
Fragrance, Bath and Body, and skincare continued their outperformance in the quarter. Our expanded offerings of gift sets designated extremely well with our customers. And we continue to see brands such as Sol de Janeiro, Lineage, YSL, and Summer Fridays perform especially well in the quarter.
In addition, our accessories business, excluding Sephora, had a flat comp for the quarter. This was driven by our investment back into jewelry with strong performance in fashion and bridge jewelry, as well as fashion accessories and our impulse business. We have made good progress on rebuilding our proprietary brand inventory position through the quarter.
As we received fresh receipts in our proprietary brands, we saw a relative sales lift throughout the quarter. This helped deliver a notable comparable sales improvement in our apparel businesses when compared to Q3. We expect these businesses to continue to improve in 2025 as we rebalance our inventory.
Last, we continue to see collective outperformance in our key growth categories, including impulse, gifting, home decor, and baby gear. However, this outperformance was not enough to offset our legacy home business, which remained challenged in the fourth quarter. Our kitchen electrics, floor care, and bedding continued to underperform.
Moving down the P&L, other revenue was $222 million in Q4, a $24 million decrease versus last year. The decrease was driven by a decline in credit revenue due to lower revolving credit balances and lower late fees. Gross margin in Q4 was 32.9%, an increase of 49 basis points. The year-over-year increase was driven primarily by optimizing our promotional events as well as lower digital penetration.
For the full fiscal year 2024, gross margin increased 50 basis points to 37.2%. SG&A expenses in Q4 decreased 4.5% to $1.5 billion deleveraging approximately 148 basis points versus last year. The decrease to last year was driven primarily by lower spending in stores, marketing, and supply chain.
For the full year, SG&A decreased 3.7%. Depreciation expense was $183 million in Q4 and with $743 million for the full year. As compared to last year, depreciation expense declined $4 million and $6 million respectively, driven by reduced technology capital spends.
Interest expense in Q4 was $74 million and $319 million for the full year. Relative to last year, interest expense decreased $8 million in Q4 and $25 million for the year, driven by the retirement of $113 million of debt in Q2 this year. Our tax rate was 17% in Q4 and was 12% for the fiscal year.
Adjusted net income for the quarter was $106 million and adjusted earnings per diluted share was $0.95. For the year, adjusted net income was $167 million and adjusted earnings per diluted share was $1.
During the fourth quarter, the company announced the closure of 27 underperforming stores and 1 e-commerce fulfillment center. These measures are part of the company's ongoing effort to increase efficiency and support the health and future of its business. The impact of this decision resulted in a one-time charge of $76 million and earnings per diluted share of $0.52 and have been excluded from the numbers discussed.
Moving to our balance sheet and cash flow, we ended the year with $134 million of cash and cash equivalents. Inventory was up 2% compared to last year, driven by our investments to rebuild our proprietary brand inventory.
Operating cash flow is $596 million in Q4 and $648 million for the full year. Capital expenditures for the quarter were $99 million and $466 million for the year.
In 2024, we retired $113 million of bonds and returned $222 million to shareholders through the dividends. We ended the year with $290 million outstanding on a revolver.
Now, let me provide details on our outlook for 2025. As you heard from Ashley this morning, Kohl's is a solid company with substantial opportunity, but this will take time. We've undergone a lot of change over the last couple of years. Some changes were positive, while other changes led to some missteps. As we approach 2025, our guidance outlook recognizes both the time needed to make the necessary changes, as well as the uncertainty in the macro environment.
For the full year, we currently expect net sales to be in the range of a 5% decrease to a 7% decrease versus 2024. Comparable sales to be in the range of a 4% decrease to a 6% decrease. Comp sales will have an approximately 90 basis points benefit from net sales due to store closures. Operating margins to be in the range of 2.2% to 2.6%. And earnings per share to be in the range of $0.10 per diluted share to $0.60 per diluted share.
Now, let me share some additional guidance details. We expect other revenue to be down 12%. The decrease is due to an accounting change that requires us to move a portion of our credit expenses from SG&A to net against credit revenue. As well as lower accounts receivable balances driven by sales underperformance in 2024, especially by our credit customer.
Gross margin to expand 30 basis points to 50 basis points driven by continued inventory management, increased proprietary brand sales, and optimizing promotional offers. SG&A dollars to be in the range of down 3.5% to down 5%. These savings will be driven by our Q4 actions resulting in lower store payroll and supply chain costs, as well as lower marketing expenses and a benefit from a portion of the credit expenses moving into other revenue, as I previously mentioned.
Depreciation and amortization of $730 million. Interest expense of $315 million and a tax rate of 18%. As we anticipate the new initiatives to take time to have an impact, we expect a sales build throughout the year.
And although we are pleased with our start to Q1, there's a lot of quarters still ahead of us. Given the uncertainty in the macro environment, we will stay prudent and expect Q1 comparable sales to be at the low end of our sales guidance range for the year, with the remaining metrics balanced by quarter.
Next, I would like to discuss how we are prioritizing our capital allocation for 2025. In 2025, our focus will be rebuilding our cash balance, reducing our reliance on the revolver, and capitalizing on opportunities to further reduce our debt and overall leverage.
We will be addressing our July 2025 maturities this spring with the intention to refinance the debt. We expect capital expenditures to be in the range of $400 million to $425 million. CapEx in 2025 will include investments to complete the rollout of Sephora, expand impulse queuing fixtures, and omnichannel enhancements. Additionally, we'll be opening 2 small stores in the first quarter.
Given our priority to rebuild our cash balance, the Board has made the decision to reduce the dividends. Although we remain committed to returning capital to shareholders, this reduction allows for greater balance sheet flexibility. This morning, the Board declared a quarterly cash dividend of $0.12.50 per share payable to shareholders on April 2.
With that, Ashley and I are happy to take your questions at this time.
Operator
(Operator Instructions)
Mark Altschwager, Baird.
Could you talk us through your assessment of what has been working, what hasn't been working with the merchandizing strategy, where you believe you can affect the most change in the near term, what may take longer to implement? And this bigger picture, what gives you confidence that Kohl's can return to growth?
Yeah, thanks for the question. Yeah, what I saw, obviously, before I took the job was when I assessed the entire business, I just saw opportunity, right? I saw an opportunity around the products we offer, the value that we're offering and the quality of the product, how we allocate, how we run the stores, and most importantly, how we do an omnichannel experience. We had a lot of friction to the customer piece.
And I thought, a lot of the issues really were probably self-inflicted over many years of the decisions, and you could just see what I saw from a customer base that we have a very loyal customer. I mean, when I toured stores, all I heard was how much they love Kohl's and what I realized is that we're kind of making it hard for them to love us a little bit, right?
And with that being said, you could just see the opportunity in front of us as far as how we offer the customer value and product, and I just knew that we could do better, and I think the customers expect us to do better.
I'm just -- and then I think the last thing that really kind of got me was I was amazed at our associates in the field, how committed they were, and how they were just truly customer focused. So that's, I mean, that's actually very harder to create, I think in retail sometimes is very dedicated associate base that really wants to serve customers. And so I knew if you have that and you can offer the right value proposition, I knew it could turn.
It's going to take a little time. The things I laid out, they're really short term and tactical in that sense. I'm still creating the long-term strategy and the greater value proposition, but if you look at the three things we laid out, they're kind of no regret moves. I mean, really leaning into our proprietary brands, which our customers come to expect from us.
Reimplementing some of the categories we got out of. The categories we and the category we put in were the right ones. They attracted new customers. It was really, I think, in the execution of how we did it. We took away really productive space and products, which I think we could have done it probably a little bit differently and done both.
So, and then you can look at how we do omnichannel. It's clear in our results that there's a bifurcation between us and our peers and our particular e-com business of performing. I was really pleased actually in the fourth quarter, we saw a pretty good trends in our store base, which is kind of an anomaly in the retail landscape. That being said, we saw bifurcation in the e-com business, which, given my experience, I feel very confident over time that we can adjust that trend and get back in line where we expect.
And just follow up, I guess either for Ashley or Jill. What are the implications from a margin perspective as you aim to elevate the quality of the private brands while also broadening the brand inclusion with the promotional offers. And on the promotional offer side, what has been the feedback from your brand partners initially?
Well, I mean, if you look at how we're doing, I mean, we started the proprietary, private brand it's really been Q4 before I got here, and the customer was resonating. We kind of lost trip assurance on basically the key basic. So it's not really private versus national. It's really just reserving, I would think from an inventory level, what our customers expect our core customers around our proprietary brands.
So, and how we get there from a from a discounting perspective, how we do promotions and where we put our markdowns, I think there's a lot of opportunity and particularly how we allocate product and where we send products. There's a lot of opportunity on the efficiency of that and we could take a lot of cost out of that and put that into the price point. But over time, if you just look at it, our mix of what has been excluded from the coupon has gotten too high and that you, that's clear. I mean, without a -- there's really little doubt from a customer perspective, particularly our core loyal customer, that we've excluded too many brands from that, which then has an impact on obviously how they view value from us.
And I don't think -- I think we can do both, and we've done it in the past. If you look at the mix between proprietary and national brands, obviously, proprietary brands have a better margin mix. We've been create -- I guess, it creates a lot of fuel for productivity on price. So, it's going to take a lot of time to get there because I mean if you think about it, we've already bought pretty much through Q3. So I'm not saying this is an overnight piece, but I'll know how we get there over time as the mix changes and we can drive national brands while we increase our proprietary brands.
Operator
Dana Telsey, Telsey Group.
And as you think about the store profile, we just heard about the 27 store closings that was announced like a month or so ago. How do you think of the store base? What are you looking for? We always knew that they had that they were profitable stores. What's the right mix to be both size and number?
And then if you look at the merchandise assortment, given the reset that's going on and we've been through active, we've been through numbers of different things. What do you want the mix to look like and what kind of margins do you think it's attainable for the business?
We -- I mean, there's very few stores that are not for all profitable, so we're really blessed in that sense. We have a very productive prototype, particularly our main 80,000 plus prototype, it's very productive and very profitable. As we look at -- so I don't really see, obviously, we always do a healthy evaluation every year of our store base but going into the very few that are -- they are not profitable at this point.
So, with that being said, if you look at inside the box, right, how we allocate space among categories and products and adjacencies, I think we've lost a little bit of discipline on that part, and there's a lot of opportunity. I mean, just a simple thing we've done just recently before I got here is realigning casual pants next to the dress pants and you saw an increase, right? It's just the traditional how the customer shops and the adjacent CTs.
As far as margin piece, I'm not going to go into the forecast portion, but like I said, it's a very productive box. I mean, we're still thinking through the smaller format piece as how we build out cost and the productivity of that. Obviously, we built several in the last few years. I think it's still a work in progress on the 33,000. The 55s actually are doing pretty well. I still have a lot of opportunity, I think, on how we do the build out and the return. But we're still learning, but our workhorse is still the 80,000 and it's a highly productive prototype.
And just any comments on your customer, what you're seeing from the customer, how they performed exiting the fourth quarter and what you're looking for them going forward.
I mean if you break down the customer, I think, from a macro perspective, you see a pretty decent bifurcation among income level. We don't see it too much geographically per se. But when you look at income level, if you're making less than 50, that consumer is pretty constrained from a discretionary standpoint. If you're making less than 100, it's also pretty challenging.
And you see that very clearly in numbers and obviously, we hear the inflation numbers we're, they're coming down or 2% to 3%, but they're still pretty elevated from a particularly from a grocery and rent perspective in the last few years but they haven't actually deflated. So -- and I'm not sure wages have kept up with that. So in that -- if you're in that income cohort, which we do have a decent portion of our customer base in that, it's a headwind from a macro perspective. You definitely see that in them they're seeking out value. You see it in the mix of the product we're selling. You see it in the promotions that we are doing. They're definitely seeking value.
I don't think we're an anomaly in that. If you listen to the other retailers that have come before us and else, they keep talking about people are looking for value. And that will probably expand probably across income cohorts over the next probably 3 or 4 months, I would assume. And I think that's really how we're positioning ourselves, which I let off the quality and value, which I think will resonate with our customers, particularly in this time.
Operator
Oliver Chen, TD Cowen.
We were curious about which initiatives would be earlier versus later and what's your take on what might be more difficult to achieve versus longer -- lower hanging fruit?
And Jill, you, you've had the experience of many changes at Kohl's over the years, as well as management. What are your thoughts about how this may be different and comparing it and contrasting it to aspects of the past?
And Jill, as we model free cash flow, it's certainly less than last year. Are there puts and takes in networking capital and CapEx that we should know about to help inform the decline? We're modeling like less than half of the free cash flow this year versus last.
Yeah. I mean, like I referenced, it's going to take some time. Obviously, the three things I laid out in 2025 or I call them, almost tactical, short-term, no regret moves. I mean, it's a long lead time business if anybody's been around, we're looking at 9 months in some cases to get product. And so, the things that we have, the changes that we are implementing, we'll take a little bit of time, right? We probably won't even see the initial thing until next year.
Obviously, there's a lot of things around how we operate the store from a cost perspective, how we do promotions, how we do some of our pricing and the proprietary mix are more short term. The longer-term piece around the value proposition and how we go to market. We're still developing, but it -- like I said, this is a long lead time business and so it takes a little bit of time to turn the ship, just the nature of how the product flows and it works.o
Jill Timm
And in terms of free cash flow, Oliver, I think what we're going to see this year is obviously, we came into the year with our inventory up a little bit as we're building back into our proprietary brands. We talked on the call that January was actually our strongest month. We said we had a strong start to February, so as we build back into that brand portfolio, we're seeing it really resonate with customers because it does give them value.
We're doing that, we're not going to get as much benefit out of inventory, particularly in the front half of the year. We'll continue to work that down and I'll expect by for the full year our inventory turn will be flat, which does mean our receipts will have to be down. But you'll see that the aggressive decline in receipts as the year moves on, so you won't get as much of a working capital benefit from inventory in '25 as you did in '24.
And Jill, what's your context for the nature of what needs to be done now, relative to your experience?
Jill Timm
Yeah, I think that how Ashley's outlined it, some of the steps we took were probably a little too far, and we really polarized our core customer, and they're the ones who took some of the brunt from it. You see that a little bit on the credit side, particularly in the credit revenue that customer really came to look for value, wanted to use their coupon, wanted the familiarity of brands that we actually took away from them. They over penetrated in jewelry or petites. So, some of those actions I think were harmful to that core customer. So we need to move back and build that brand love with them again.
What I would say is we did bring in a lot of new customers. I mean, obviously, Sephora was helpful from that perspective, and we're driving those customers into our loyalty program. But we really just really need to establish that we have a great experience when you come to the store. We have trip assurance so that we have that depth of inventory when you come to the store, you can get what you're looking for, and we have the brands that you've come to love and look at for clothes from a value perspective. So I think, again, just some of the basics, but I think as we moved farther away from that was what really became harmful, and it really became that core customer from our perspective that we have to bring back in.
And finally, just to follow up, Ashley, as you think about value intensely, what's the interplay between supply chain speed and agility relative to value? I think we're in a permanent phase of like unprecedented levels of volatility, which may require shorter lead times, but I know you're often balancing that against price and, transport costs.
What I've noticed over the last, I got 3 to 4 years is the semi-shocks seem to be more frequent over time, particularly from a supply chain and the way the world supply chains are becoming kind of rethought and obviously rebuilt. I was very pleased when I got here, that Kohl's was actually kind of on the forefront of supply chain diversity and product assurance. I mean they started really back in '18 diversifying their supply base, which I would say is probably 2 to 3 years ahead of most people that I'm aware of. So I was very pleased to, that there was a really strategic plan dating all way back probably to '18 of having kind of a diverse agile supply chain.
And one of our biggest, I guess the impressive parts is how well our supply chain actually works here at Kohl's. It is a well-oiled machine. There's a lot of opportunity on the allocation part from, say, the corporate side as far as the supply chain. I've been very pleased with how this, that part of the company operates. And like I said, I think it was a they saw the dominoes falling well in advance and around how getting supply chain diversity around security supply. So not really over indexed in the individual country, which has been quite helpful.
Operator
Michael Binetti, Evercore.
Could you maybe help us -- can you speak to the expectations going forward for Sephora, this year in both, the same store sales or store editions?
I guess, secondly, could you explain the comment that the changes the last few years have caused some friction with the legacy existing core Kohl's customer, maybe your answer was embedded in a couple of the other answers you have here. I just wanted to ask specifically what you saw with that comment.
And then also elaborate a little bit on the comment of how you're addressing promotions where there's a lot of efficiency that you can take costs out but push the savings into the price point just so we understand a little bit more tactically what you mean by that.
Jill Timm
Yeah, so I think this year, we will complete -- we opened 140 stores in 2024. We'll complete our rollout this year in 2025 for the remaining stores. Those will all be small shops though because they're going to go into our smaller format stores so the contribution from Sephora will become less.
Now, we're excited that we actually saw a 13% comp in the quarter. It actually accelerated from Q3, so we continue to see it really resonate with our customer, particularly it's a trip driver for that customer. It's a new customer coming in, and we see that customer about 35% of the time buying something else that while they're at Kohl's. So we have a big opportunity to continue to expand that basket, and I think that's where a lot of that opportunity land.
The newness continues to resonate. We've called out a lot of great brands, and I know we have newness as we come into 2025 as well. That will help continue to drive that, but obviously, won't have the continued contribution of having new store openings. So you'll see a little bit less of that contribution to the overall comp in 2025 just because you have less new stores opening this year than you did last year.
And the part to the question, On the core customer piece, if you look at -- so when we added these initiatives over time, we took away, I would call it, highly productive, highly incremental product. I mean, Sephora went in, it was actually wildly successful, brought in a new customer base, did all the metrics that you would expect it to do, and they've been a fantastic partner.
It went into the jewelry section, right? Which if you look at the way jewelry works, there really is no substitute. You come in for it. It's not like you're going to buy, well, I'm going to go buy a shirt now. It was highly incremental and actually highly productive, labor intensive but highly productive. Instead of just moving that and I would say removing duplicative or duplicated product elsewhere or less productive space on the floor, it was just gotten rid of, right? Well, that's a core customer that really there's no other place for it to go.
And then you replicate that among petites, big and tall, and you have this kind of a rolling piece of where the ideas that were put in were right. I think it goes back to how you reallocate the space from a data perspective and making sure you're looking at the profit incrementality because petite again, it's 100% incremental because you can't really find that product anywhere else because it's the size fit these. So, the ideas were good. I think we could have done both if you look in retrospect, obviously, easily when you're sitting here in my chair, years later, but it definitely caused friction over time with our core customer that was used to that product, even though we attracted different customers.
And then the promotion comment.
And your question on promotion comment, it was.
Yeah, I just wanted to see if you could elaborate on the comment that you see an opportunity to make the promotions efficient, take some the cost out and push that those savings into the price point, just for us spreadsheet folks, what does that actually mean a little bit more tactically on a retail floor.
I probably -- my comments probably won't help you with your spreadsheet, but from philosophically though, if you look at what we promote, how we promote it, the depth of what we promote it, and the efficiency and the incrementality of it, you get a little bit of a peanut butter spreading across many categories where some are actually way more elastic than others too. We tend to give away a lot of, I'll call it, markdowns at the register. If you look at tactically how we do it, the customer comes in and is not asking for that deal, and we tend to give it to them.
And so if you think about those two components, you're spending a lot of money at the point where the customer really doesn't. It's not asking for that as opposed to them putting it into things that are highly elastic that the customer is really looking for. So there's some interesting ways that we operate, and it's just a legacy way of doing it. It's pretty typical sometimes when you see in retail, but you can take that money and probably get a higher return that the customers recognize more versus probably just at the register.
Operator
Ashley Helgans, Jefferies.
So to start, maybe you could just talk about what sort of kind of consumer health level is embedded in the guide for this upcoming year. And then Ashley, for you, how are you thinking about the right mix of private label versus national brands?
Jill Timm
Sure. I think, overall, we know that there's a lot of uncertainty with the customer and you know we try to definitely take a prudent approach with our guidance. So really our outlook both recognizes the time needed that we have to make the necessary changes that we've outlined today as well as the uncertainty that the consumer is facing in the macro environment. And I think you know that's why, we came out a little bit lower to make sure that we were addressing that uncertainty and the time needed. So I would say it's incorporated in everything we gave you today.
It's a very common question. What's the right mix and what is your target? In my 20 plus years, I have found that to be a very dangerous thing that you throw out, particularly to merchandisers here in retail, because you can tell them to hit a target, and they will hit a target. What I would say would be the customer will decide the mix in the end.
I think there'll always be a place for high quality, high value proprietary brands, and then putting that in front of the customer. Along with pretty quality national brands that people recognize and then you let the customer decide.
Historically, when you set kind of artificial targets that this category is going to be 20% or 30%, I think it kind of takes the customer lens out and you're kind of forcing that upon the customer a little bit. So ultimately, I think the customer decide. I used -- I get the question, I used to get the question all the time like, what does your e-com mix want to want it to be, what your store makes want it to be, whatever the customer, our job is to meet the customer wherever they want to be met.
And we can do a better job of that, but I won't give a target because then they'll just hit it. What I want them to do is offer great products at great values, and then let the customer decide and then tell them effectively. That's -- I know that sounds like probably not what you're looking for, but that's really the answer that it deserved for this organization for sure.
Operator
Charles Grom, Gordon Haskett.
Regaining traction with lost customers can be hard and oftentimes can take a long time. I'm curious what steps you're taking to improve on this front. You talked about rebuilding the private brand mix, I'm just curious like what else you can do to go back to those customers, you have a big file, how are you attacking that and is there a cost associated with that as well?
Yeah, it's good. I mean, obviously, it's easier to keep a customer and regain it historically right in retail. First, we actually have to make the changes and let's start with that. We actually have to go back proprietary brands. We have to put the categories back effectively in the store base. We have to get the brands that our customers want back on the coupon, and then we have to effectively tell them.
The great news is we have a large, very large, customer file that's still existing. We have a large database of active and deactivated customers that we can still reach out to. That part will take a little time. I don't think there's that much incremental cost associated with it given our marketing budget, but that part will take a little bit of time.
You have to do the first part before you can tell them. I think the worst thing you could do is tell them there's something different when it hasn't changed yet, but you can see that in history of retail to be very precarious situation. So for us, it's about getting the proposition right and then bringing them back, not in the reverse order.
And then on the store fleet, you're closing 27 stores, and a lot of your peers are more aggressive on that front. I'm curious like what was the logic behind the 27 and I guess why not close more stores and I guess are you prohibited because of the Sephora deal of the closing stores, so that's why you're not getting more aggressive on that front?
Jill Timm
I think we've always talked about the fact that our fleet is incredibly healthy, and we didn't have a lot of stores that were underperforming. We're generating cash, for all cash, for more profit out of the vast majority of all of our stores, so there's really not a need to close the doors.
I look at these 27 stores as hygiene, and that's something we should be doing all the time. We look at it annually, we look at the stores that are underperforming, and we're closing those. Regardless, there's no limitations on which we could close and what makes the most sense.
I think as we come up in the next several years, we have a lot of leases coming due, which then affords you an opportunity to relook at should we be relocating that store, downsizing that store, closing that store, but typically, because we're generating profit and cash in these stores, it's a pretty easy decision to continue moving forward.
As Ashley mentioned, we could make the four walls more productive inside them, but as it is today, there's just not a reason to have to make a lot of closures. In fact, I think if you look forward, we're testing into these small store formats. We've talked a lot about the 55k and 35k. So it's more about where and how can we expand once we figure out the four walls of our box to say how can we get into some of these more rural markets that we know we have opportunities to serve with our format.
Operator
Matthew Boss, JP Morgan.
Matthew Boss
So Jill, could you speak to the overall health and composition of inventories exiting the fourth quarter? And then just with the cost structure, maybe if you could speak to further areas of rationalization or is 1% to 2% still the comp required for SG&A leverage in the model.
Jill Timm
Sure, I think from an inventory perspective, I feel really good with the health, although it was up 2%, as we mentioned, we made that investment back into our proprietary brands and also, actually into some of the brands we exited like jewelry, we did have a strong presence of that in the fourth quarter. We thought it resonate with our customers and as we talked about, we saw a flat comp and accessories without Sephora by going back to that category.
So I think as we move into the first quarter, we have an opportunity both with Valentine's Day and Mother's Day to take advantage of that category. So I feel good with the health and the composition of the inventory. Like I mentioned, we're going to continue to rationalize our receipts based on the sales guidance we gave today and for the year look for our turn to be flat, but I feel like we've done everything we need to do from a health of inventory as we entered into the year to set us up well for '25.
In terms of the cost structure, obviously, with the guidance down we're down 3.5% to 5%, so we are showing both in '24 and '25 we've cut costs at a more aggressive rate than the typical, 1% to 1.5% comp leverage point that we've given you. So I think if you run your model, you'll see we'll be well beyond that with the guide that we gave for '25. So I think if we look at these opportunities we continue to -- we close an (inaudible). We closed the 27 stores. We've done some headcount rationalization as well, so we continue to look for big ways to optimize.
As we move into 2025, we have some other areas such as lowering our marketing costs. We've talked about, moving that A to F goal down year on year to become more efficient there so we'll continue to lean into that and always looking for ways to optimize our store payroll. We still have 250 stores with self-checkout so as we test and learn there, how can we become more efficient from that labor pool as well.
And then as we have been rationalizing down the inventory, that also alleviates labor both in our distributions and in our stores. And so, those type of items will continue as we move into 2025. So I think, the point that I like looking at 11 have comp, but we've clearly done better than that in '24 and the guidance we gave for '25.
Operator
Brooke Roach, Goldman Sachs.
Ashley, I was hoping we could follow up on Mark's question and speak to the process of reversing the brand exclusions on the coupon program. What does that look like in practice and are you seeing any headway on brand conversations in getting those exclusions removed?
And then for Jill, I was hoping you could provide some additional color on what you're seeing in your credit business excluding the accounting change, how is the co-branded partnership scaling and how should we be thinking about the contribution from balances and your credit customer health?
I mean, we're currently in the process of evaluating every brand. Obviously, some brands that we've carried have always been excluded. I'm not going to sit here and say that we're taking them all off. Actually, they'll always be very large national brands that will always be excluded. I won't name them, but those are -- but they were over the last, I don't know, several years, there have been many brands that didn't ask to be excluded, we excluded them unilaterally if that makes sense.
And you do a little bit, every year over the last 3 to 4 or 5 years, and it adds up pretty quickly. And those are really the brands I'm talking about are larger. Some of the larger brands that's always been excluded, I don't really see a change in that value proposition. But there's hundreds upon hundreds of brands that we unilaterally did that our customers over time added up and say, well, this is becoming too excluded when you add up all the product, and those are the ones we're actually looking at and it doesn't really require that much of a conversation because they didn't ask for it and sometimes they actually have asked us to repeal it so those are the easier ones.
Obviously, we'll have strategic conversation joint business planning with our much larger national brands and see where they are strategically. I don't see that those worlds will change that much in the short term, but those are between they're really enjoying business planning together and how we drive our brand and their brand together. But over time, we've just excluded unilaterally a lot of brands and those are the ones that I will actively look at on a more immediate basis.
Jill Timm
Sure. And in terms of credit, as we called out with our sales being softer, we saw that softness more in our core customer, particularly in our credit customer. So that has been the softness that we've talked about in our credit revenue line is that AR balance has kind of continued to be reduced as the sales are down. We have less revolving balances, so that I think as we've projected will go back into 2025. The SDA shift obviously makes that revenue look lower in '25. Without that shift, our credit revenue would be better than the sales comp guide that we had given from a a decreased perspective.
In terms of the co-brand, we actually just fully completed the co-brand conversion to cap one in February, so that's been successfaully completed from that perspective. We did see though that we gave a little bit less line increases with this last cohort than we had done with the original cohort we had done, and when we do that, we saw a little bit less spend. As the, I think macro environment gets better, that provides us an opportunity to have a line increase which will help generate more sales from that perspective.
But I would say right now, we have an opportunity in front of us to really generate more sales for that core customer in general, which would then help lift our total credit revenue as we move forward. But obviously, in the guide, we're looking at this being a little bit better than what we had seen from a total sales perspective X the SDA shift.
Operator
We're out of time for questions today. This will conclude today's conference call. Thank you for your participation, you may now disconnect.
