Kohl’s Corp. Sees Beauty, ‘Dressy’ Casual Clothes Among Keys to Driving Turnaround

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A lot more beauty, more “dressed” up casual apparel and more gifts and pets.

Those are some of the key components of Kohl’s Corp.’s turnaround strategy, which so far is showing some progress in stabilizing the business as the retailer reported that its bottom line stayed flat for the first quarter while sales volume continued to slide.

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Net income for the quarter ended April 29 was $14 million, or $0.13 per share. That compared to net income of $14 million, or $0.11 per share in the prior year.

Net sales decreased 3.3 percent to $3.36 billion, from $3.47 billion. Comparable sales decreased 4.3 percent.

“Our first-quarter results were in line with our expectations and represented a first step as we work to drive sales and earnings performance over the long term,” Tom Kingsbury, Kohl’s chief executive officer, said Wednesday in a statement. “We delivered margin expansion, as well as a 6 percent reduction in inventory. In addition, our stores business achieved productivity gains and Sephora at Kohl’s continued its sales momentum.”

Kingsbury added that the company is “making progress against each of our key 2023 priorities, enhancing our customer experience, simplifying our value strategies, managing inventory and expenses with discipline and strengthening our balance sheet. I would like to thank the entire Kohl’s team for driving against these priorities with a clear focus and strong determination. While there is still work to be done and the macroeconomic environment remains challenging, we are affirming our 2023 guidance and continue to have conviction in Kohl’s’ longer-term opportunity.”

Tom Kingsbury
Tom Kingsbury

Apparently, investors were pleased with the first-quarter report card, pushing the stock price up 7.45 percent, or $1.45, to close at $20.72. Earlier in the day, the stock surged more than 12 percent.

In other financial results, Kohl’s reported that its gross margin increased 67 basis points, and that inventory declined 6 percent.

The Menomonee Falls, Wisconsin-based retailer affirmed its full-year outlook, expecting a sales decrease of 2 to 4 percent, which includes the impact of the 53rd week which is worth about 1 percent year-over-year. Sales in 2022 came to $17.2 billion.

Operating margin is seen at about 4 percent. Diluted earnings per share are In the range of $2.10 to $2.70, excluding any non-recurring charges.

Capital expenditures are seen in the range of $600 million to $650 million, including expansion of its Sephora partnership and store refresh activity.

Kingsbury, in a conference call, said beauty sales increased 150 percent year-over-year. “We achieved mid-teens comparable beauty sales growth in the 200 Sephora shops opened in 2021 and the sales trends in the 400 shops open in 2022 continue to exceed our plan.” He said investments in Sephora “are yielding the outcomes we intended. We are in the process of further expanding the Sephora footprint at Kohl’s, reaching more than 900 of our stores by the end of 2023.”

He said Kohl’s developed a 750-square-foot Sephora shop, and five opened a few months ago. “They have driven solid beauty sales exceeding our expectations. We’ll open another 45 later this fall reaching 50 by the end of 2023 and will be rolled out to the remainder of the chain by 2025.”

He said Kohl’s active business was “healthier during the period outperforming the company average with positive growth in apparel and continued success in outdoor.

“Conversely, we continue to see softness in the home category, an area we are highly focused on and one that remains a substantial long-term opportunity.” He said Kohl’s is “rebuilding our core business as well as growing underrepresented categories such as gifting, decor, pet, impulse and outdoor. We will see these initiatives come to life in how we merchandise our stores in the coming months, with gifting and home decor showcased near the front of the store to inspire customers as they enter. When you visit our stores now, you’ll see Americana-themed gifting products focused around the Memorial Day and Fourth of July holidays.”

Specifically, Kingsbury said areas of opportunity include a greater selection of wall art, seasonal items, patio furniture, camping and outdoor gear, and tabletop.

In apparel, Kohl’s is beefing up its selection of “polished” casual and dressier clothing in women’s and in men’s, adding more suits and dress shirts. Meanwhile, Kohl’s “remains committed to the active business while investing in our outdoor presence with an enhanced in-store experience and elevated merchandise,” Kingsbury said.

Regarding children’s, Kingsbury said the category outperformed the company average in the first quarter with positive growth in active and dress clothing. “Similar to women’s and men’s, we are diversifying our offerings with a greater selection in areas such as girl’s dresses and boys dress clothing.”

In other maneuvers to improve the shopping experience, Kohl’s is consolidating checkouts to one central checkout in most stores, adding self-checkout kiosks in 250 stores to support that transition, and simplifying its signage and graphics for better navigation of the stores.

In terms of store openings, there have been two this year so far and five more are planned, including one relocation. “We don’t anticipate closing many stores — few, if any,” Kingsbury said.

Kohl’s digital business saw softer demand in the first quarter, as customers continued to shift back toward stores. Online-only promotions were reduced “as we work to simplify our value strategies,” Kingsbury said.

Explaining how the value messaging will change, Kingsbury said, “During the first quarter, we began to replace general promotion and online-only offers with targeted offers and clearance events to clear slower selling goods on a more regular basis. We’ll continue this approach moving forward at the appropriate pace. Additionally, we will test key value items within our private apparel and home brands which are aligned with our simplified pricing efforts. Customers will begin to see a small percentage of our assortment move to this approach during the back-to-school season which we will integrate into our marketing messaging.”

Kingsbury also said the company is starting clearances earlier to create greater liquidity to chase receipts and drive turnover. “Customers love clearance. There is nothing better,” Kingsbury said, during the Q&A portion of the conference call. “We were waiting to take markdowns. We would take fall markdowns in February and March. that was just too late. Timely markdowns are really critical to running the business.”

Turnaround efforts by Kingsbury and Kohl’s new chief merchandising and digital officer Nick Jones are expected to be felt more so in the back half of this year. Last February, Kingsbury became Kohl’s CEO after serving as interim CEO, and Jones joined the company after serving as CEO of the U.K.-based Joules Group.

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