25 photos showing that Kohl's is a mess right now

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Kohl's is only days removed from an earnings day disaster.

The struggling mid-tier department store saw second quarter same-store sales tank 7.7% as middle-income consumers pulled back on discretionary purchases as inflation remains elevated. Gross profit margins plunged 290 basis points from a year ago. Inventory ballooned 48% from a year ago.

Execs at Kohl's embarrassed themselves further (again) by badly slashing full year guidance to the worst amount of any big-name retailer this earnings season. Kohl's sees full year earnings in a range of $2.80 to $3.20 a share, down sharply from a prior forecast of $6.45 to $6.85.

"Even though guidance for an approximate mid-single digit percentage comparable sales decline in second half and ~600 basis of operating margin pressure versus second half 2019 lowers the bar (and implied margin pressure in 2H is similar to 1H vs 2019), the products Kohl's sells are all discretionary (vs Target/Walmart, which have traffic driving food/consumables), which could cause additional share loss if the consumer weakens further in the quarters ahead," Citi analyst Paul Lejuez warned in a note to clients.

The earnings day bomb comes hot on the heels of Kohl's failing to close a deal to sell itself amid numerous expressions of interest.

"It's hard to imagine how inept they are," a top Kohl's shareholder said of current management to Yahoo Finance following the company's latest earnings.

Amid this backdrop, Yahoo Finance visited a couple of Kohl's stores on Long Island in New York this past weekend to get a sense of how things are going for the retailer.

What we found was that Kohl's clearly overestimated consumer demand and could be forced to endure profit margin busting markdowns well into the holidays to clear unsold inventory. And that reality stands to hit investors once again if consumer spending doesn't meaningfully accelerate.

We first rolled up to a Kohl's in Bayshore, NY. Kohl's is very proud of its new partnership with Sephora, so much so they have slapped the name on the outside of the building. Kohl's told investors last week it sees $2 billion in sales from Sephora by 2025 as the shops open in all 1,100 locations.

The clouds were ominous, and the parking lot sparse.

Since Kohl's CEO Michelle Gass took over as CEO in May 2018, shares have plunged 52% according to Yahoo Finance data. By comparison, the S&P 500 is up 61%. Macy's shares have dropped 38%.
Since Kohl's CEO Michelle Gass took over as CEO in May 2018, shares have plunged more than 50%. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

As soon as we entered the store, we were greeted not by an employee — but by a clearance section. When gross profit margins fall 290 basis points in a quarter, the below picture partially explains why.

This section immediately set the tone for this particular visit.

Kohl's best hope the average gym goer is lifting weights 7x a week and destroying their clothes in the process if they want to move all of this inventory soon.
Kohl's best hope to move all of this inventory soon is that the average gym goer is lifting weights 7x each week and destroys their clothes in the process. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

Racks upon racks of deeply discounted apparel were seen throughout the store.

Quick: is this Kohl's or Marshall's? (Brian Sozzi/Yahoo Finance)
Quick: is this Kohl's or Marshall's? (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

This wasn't the only 60% off discount in this store. That level of discount was the norm on most of the clearance racks we perused.

We wouldn't want to work out in these pants -- they were a little scratchy to the touch. That probably explains why they are still sitting on the rack at 60% off.
We wouldn't want to work out in these pants — they were a little scratchy to the touch — and that probably explains why they are still sitting on the rack at 60% off. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

Halfway around Kohl's "racetrack" floor design, we were hit with another clearance section.

This was the first rack (in a long line) that we came away thinking: "There is just way too much stuff in this store, especially since it's being borderline given away and the back-to-school shopping season has started."

Not spotted: Aaron Judge or shoppers.
Not spotted: Aaron Judge or shoppers. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

There's so much stuff...

So...much...stuff...nobody....wants...so...stuff...it....wherever...in...the...store.
(Brian Sozzi/Yahoo Finance) (Brian Sozzi)

...that nobody wants.

Kohl's is already well-stocked for the holidays...in August.
Kohl's is already well-stocked for the holidays...in August. (Brian Sozzi)

Stacks on stacks!

The too much inventory problem spotted again, this time for jeans.
The too much inventory problem spotted again, this time for jeans. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

If you are an investor in Kohl's, realize that racks like this aren't normal and help explain why guidance was super slashed.

Look closely and you will see profit margin erosion. (Brian Sozzi/Yahoo Finance)
Look closely and you will see profit margin erosion. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

This was one of the largest clearance sections in the store.

This isn't a different store — same one in Bayshore.
This isn't a different store — same one in Bayshore. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

You are reading that correctly: Kohl's is selling a $4.50 article of clothing in the clearance section. That's 70% off the original price.

Quite proud of the price tag action shot I took. Shot on iPhone 13.
Price tag action shot taken on a iPhone 13. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

These new Sephora shops at Kohl's are huge — way bigger than the new Ulta shops at Target — and positioned at the entrance of the store. Despite the imposing size, we didn't see anyone in the shop in our about 20 minute visit to the store.

The shops better be jam-packed this holiday season if Kohl's is going to reach its $2 billion sales goal for Sephora by 2025.

We will give Kohl's this....these Sephora shops look more inviting than the ones in JC Penney.
We will give Kohl's this: These Sephora shops look more inviting than the ones in JC Penney. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

We then visited another Kohl's in Jericho, NY, driving there with an open mind given that maybe the Bayshore store was an extreme version of Kohl's struggles.

The Kohl's + Sephora sign greets shoppers. First thought: JC Penney never had signs outside like this for Sephora. Good job Kohl's!

Hello to you as well, Sephora.
Hello, Sephora. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

More Kohl's + Sephora signage as the company clearly wants people to buy overpriced face creams and makeup here instead of Ulta.

Kohl's reportedly received buyout offers in the $50 to $60 range this year. The board ended the sale process several months ago. Today, Kohl's stock trades at just under $30.
Kohl's reportedly received buyout offers in the $50 to $60 range this year. The board ended the sale process several months ago. Today, Kohl's stock trades at just under $30. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

Any hope I had this store would be different was quickly dashed as soon as I walked in.

Similar to the Bayshore store, I was hit with a clearance rack immediately.

Sadly, this clearance rack blocks the sight line to the new Sephora shop that Kohl's management is ostensibly prioritizing.

Kohl's shares are down 52% from their high on January 24, 2022.
(Brian Sozzi/Yahoo Finance) (Brian Sozzi)

Another Sephora shop with no one in it. Strange.

Maybe cut the size of these Sephora shops in half, turn one part into a traffic-driving Starbucks.
Maybe cut the size of these Sephora shops in half, turn one part into a Starbucks? (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

The over-stuffed clearance racks were also on full display at this store, a clear sign Kohl's over-estimated consumer demand.

Still pondering why Kohl's has racks upon racks of long sleeve shirts on offer. It was 96 degrees outside of this store in the middle of summer.
Still pondering why Kohl's has racks upon racks of long sleeve shirts when it was 96 degrees outside of this store. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

Plus-sized clothing at 80% off. When Kohl's reports third quarter earnings, this will show up as "merchandise margin pressure" on the conference call with analysts.

Looking at the sticker layout, this garment has been marked down three times and is still sitting on the rack.
Looking at the sticker layout, this garment has been marked down three times and is still sitting on the rack. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

It's winter in August for Kohl's.

SMH on why Kohl's has all of this on the sales floor before the fall.
Wild that Kohl's has all of this on the sales floor before the fall. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

In keeping with the theme that Kohl's has too much inventor: Here are bras and shirts thrown on a random rack in the middle of an aisle in the hopes someone buys it.

I am 5' 10
I am 5' 10" and couldn't reach the hangers on the top of this Home Depot-esque rack. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

One of the longest clearance racks we came across in our weekend visits to Kohl's. In a perfect scenario, this rack isn't here because product sold at full price.

I had zero patience to rummage through this over-whelming rack. I suspect others feel the same way since no one was shopping the rack.
I had zero patience to rummage through this over-whelming rack. I suspect others feel the same way since no one was shopping the rack. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

With companies such as Marriott, Hilton and Disney reporting strong second quarters as people post-COVID revenge travel, Kohl's being unable to sell luggage at full price is a red flag.

This photo says a lot on Kohl's not being viewed as a top destination for travel clothing and accessories.

A shopper inspects a 50% off suitcase at Kohl's.
A shopper inspects a 50% off suitcase at Kohl's. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

Unlike Bed Bath & Beyond, Kohl's is in a relatively solid cash position. So we don't think Kohl's empty shelves is a sign of nervous vendors.

We wonder if the department is being properly staffed as corporate tightly manages costs with sales under pressure.

The shoe department at the Bayshore store looked similar -- messy with empty shelves. We wonder if the department is being properly staffed as corporate tightly manages costs with sales under pressure. Given Kohl's solid cash position, we don't think Kohl's empty shelves is a sign of nervous vendors.
The shoe department at the Bayshore store looked similar — messy with empty shelves. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

More empty shelves in the shoe department.

The display models have also been removed.
The display models have also been removed. (Brian Sozzi/Yahoo Finance) (Brian Sozzi)

Thank you for reading Yahoo Finance's actionable analysis on Kohl's. Have a great day!

(Brian Sozzi/Yahoo Finance)
(Brian Sozzi/Yahoo Finance) (Brian Sozzi)

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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