Kohl’s Posts Q3 Declines, but Cites Progress on Strategic Initiatives

Updated Nov. 21 at 11:37 a.m. EST

Kohl’s Corp. last quarter continued to yield sales and profit declines, but raised its bottom-line outlook for the year and cited progress on turnaround strategies.

More from WWD

On Tuesday, the Menomonee Falls, Wisc.-based retailer reported that its net income for the quarter ended Oct. 28 fell to $59 million, or 53 cents per diluted share, beating expectations of 35 cents. In the year-ago period, net income reached $97 million, or 82 cents per diluted share.

Operating income was $157 million compared to $200 million in the prior year. As a percentage of total revenue, operating income was 3.9 percent, a decrease of 82 basis points year-over-year.

Net sales decreased 5.2 percent year-over-year, to $3.8 billion, with comparable sales down 5.5 percent. The sales results missed Wall Street expectations of $3.99 billion.

Digital sales were down 16.5 percent, impacted by the elimination of online-only promotions in favor of omnichannel pricing. Store comparable sales were down about 1 percent.

Still, while citing strong inventory and expense management, the company raised its forecast for diluted earnings per share for the year to $2.30 to $2.70, excluding any non-recurring charges. This compares to the prior guidance range of $2.10 to $2.70.

The forecast on sales for the year, however, was changed to a decrease of 2.8 to 4 percent, and includes the impact of the 53rd week, which is worth approximately 1 percent year-over-year. This compares to the prior guidance of a decrease of 2 to 4 percent.

Kohl’s stock closed down 8.6 percent percent, or $2.13, to $22.73.

“Kohl’s third-quarter earnings reflect strong gross margin and expense management as well as additional progress against our strategic priorities,” Tom Kingsbury, Kohl’s chief executive officer, said in a statement. “I am pleased with our store performance driven by strong growth in Sephora and the newness in our home and gifting initiatives. This reinforces our actions are working and resonating with our customers. In addition, we drove a 13 percent reduction in inventory as we benefited from our new disciplines.

“Our strategies to reposition Kohl’s for improved sales and earnings performance remain in the early stages. The work we have done in 2023 will continue to build momentum and set us up to be successful in 2024. I continue to be impressed with the entire Kohl’s team for their hard work and agility in executing against our strategic priorities in 2023,” Kingsbury continued.

On the morning conference call with investors, Kingsbury said during 2023 there were four strategic priorities: enhancing the customer experience; accelerating and simplifying value strategies; managing inventory and expenses with discipline, and further strengthening the balance sheet. He predicted the company is “set up to be successful in 2024,” while adding, “it will take some time for the full impact of our efforts to be realized.”

Kingsbury cited “meaningful investments” in stores including expanding pet products, gifts and impulse items in beauty, wellness, electronics, toys and snacks; simplifying in-store signs and graphics; consolidating checkout areas, and “stabilizing” apparel and footwear businesses. On Sephora, he said there’s increased confidence that it will turn into a $2 billion business at Kohl’s by 2025. Sephora has a presence in more than 900 Kohl’s stores.

In other updates on its financial outlook, Kohl’s indicated that it expects operating margin at approximately 4 percent, which is consistent with the prior guidance.

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

In one major change, Dave Alves, president and chief operating officer, left the company on Friday after less than a year on the job. The company said Alves left to pursue other opportunities and that it would not backfill the position.

“Stores and supply chain will now report to me, with other executive leaders assuming oversight of other functions [including] real estate, purchasing and risk management,” Kingsbury said on the call. “We are confident we have the right leadership team going forward and the right structure in place to best execute against our strategy, and I think it will give us more speed in terms of executing against our strategy.…I just feel that now that I’ve been on the job for a year, I understand what we need as a company.”

For the holiday season, Kingsbury said, “We always know it’s going to be promotional. Promotions are core to what Kohl’s has done, and even though we’ve done some great editing throughout the year, you are going to see us really lean in promotions.”

Best of WWD