Kohl’s, the popular department store chain, experienced a significant drop in its shares on Thursday, with the stock plummeting over 20%. This decline was triggered by the company’s unexpected loss per share, which fell well below the expectations of Wall Street analysts who were anticipating a slight profit.
In an interview with CNBC, Kohl’s CEO Tom Kingsbury attributed the slower sales to challenging comparisons. He explained that the company had higher-than-usual clearance levels in the previous year as part of its efforts to improve inventory management and kickstart its turnaround plan. Kingsbury also mentioned that sales trends started off strong in January and February but weakened in the last five weeks of the quarter due to poor weather conditions. However, he expressed optimism, stating that as the weather improves, they expect sales to rebound.
Kohl’s weak results have raised concerns for investors regarding the company’s turnaround strategy. Under the leadership of Kingsbury, who was previously the head of off-price chain Burlington Stores, Kohl’s has been attempting to attract shoppers by introducing fresh merchandise such as home decor, gifting items, and pet goods. Additionally, they have partnered with Sephora to open Sephora shops within their stores.
Despite these efforts, the desired impact has not yet been reflected in the numbers. Kohl’s reported a net loss of $27 million for the first quarter, compared to a profit of $14 million in the same period last year. Net sales also decreased by 5.3% to $3.18 billion.
When comparing Kohl’s performance in the first quarter to Wall Street expectations, it fell short in terms of loss per share and revenue. Analysts surveyed by LSEG had predicted a profit of 4 cents per share and revenue of $3.34 billion, but Kohl’s reported a loss of 24 cents per share and revenue of $3.18 billion.
The company has adjusted its guidance for 2024, lowering its expectations. Kohl’s now anticipates a decline in net sales between 2% and 4% for the full year, while analysts had expected a 0.2% gain. The projected range for diluted earnings per share is $1.25 to $1.85, significantly lower than the expected $2.34.
In addition to company-specific challenges, Kingsbury mentioned that higher interest rates and inflation have led to a more cautious outlook for the year. While the spending habits of high-income customers have remained steady, middle-income customers continue to be affected.
Despite the disappointing first-quarter results, Kingsbury highlighted some areas of progress. The women’s category showed positive trends, and Sephora in-store shops have been a bright spot for the company. Sephora’s comparable sales rose 20% year over year, outperforming Kohl’s overall comparable sales, which declined by 4.4% during the same period.
Kohl’s plans to capitalize on this success by opening another 140 Sephora shops, with most of them set to open in the second quarter. Additionally, the company announced its intention to introduce in-store outposts of Babies R Us in approximately 200 locations.
Other categories, such as seasonal and everyday decor, have also shown promising results. Comparable sales for these categories increased by more than 30%. Kohl’s has expanded its selection in these areas, offering a wider range of products like picture frames, wall art, and decorative glassware.
To improve efficiency and flexibility, Kohl’s has reduced its inventory by 13% compared to the previous year. This allows them to respond quickly to trends and purchase merchandise that is in-demand. They have particularly focused on the juniors department, which targets teenage girls, by positioning it next to Sephora to encourage shoppers to browse for outfits as well.
In conclusion, Kohl’s disappointing first-quarter results have raised concerns about the company’s turnaround strategy. Despite efforts to introduce fresh merchandise and partner with Sephora, the desired impact has not been fully realized. However, there are some positive signs, such as Sephora’s strong performance and the success of new categories like seasonal and everyday decor. Kohl’s is aiming to build on these successes and adjust its inventory to stay on-trend.
