The holiday season is off to a good start at Kohl’s.
The Wisconsin-based retailer revealed quarterly earnings Thursday before the market opened, improving on top and bottom lines and raising its full-year outlook thanks to continued strength in activewear and beauty, including Sephora’s new shops-in-shop at Kohl’s stores. Shares of Kohl’s closed up 10.41 percent Thursday to $62.36 apiece.
“Our strategic efforts to transform Kohl’s into the leading destination for the active and casual lifestyle continue to build momentum,” Michelle Gass, chief executive officer of Kohl’s, said in a statement. “We delivered another quarter of record earnings with both sales and margins exceeding expectations. During the quarter we drove accelerated growth in active and successfully launched several new brand partnerships, including the initial rollout of 200 Sephora at Kohl’s stores, which are off to a great start.”
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Total revenues for the three-month period ending Oct. 30 jumped nearly 16 percent to $4.36 billion, up from $3.78 billion the same time last year. Third-quarter comparable sales rose 14.7 percent, year-over-year.
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The company logged $243 million in profits as a result, compared with losses of $12 million during 2020’s third quarter.
Kohl’s now expects its full 2021 fiscal year revenues to increase in the mid-twenties percentage range, compared with prior estimates of an increase in the low-twenties range. The firm also anticipates adjusted earnings-per-share to be in the range of $7.10 to $7.30 a share, excluding any non-recurring charges, compared with the previous estimates of $5.80 to $6.10 apiece.
“We are positioned to exceed most of our 2023 goals this year,” Gass told analysts on Thursday morning’s conference call.
Categories of growth in the most recent quarter included activewear, which was up 25 percent during the most recent quarter, year-over-year, led by national brands, such as Adidas, Nike and Under Armour.
“Active is now one of our largest areas of business,” Gass said on the call. “Active sales significantly outpaced the company, growing more than 25 percent last year and more than 20 percent on a two year basis. We’re seeing strength across the board in men’s, women’s and children’s [activewear] apparel, as well as in footwear. Of note within active apparel, we are especially pleased with the traction you’re gaining in athleisure and inclusive sizing.”
That includes the PSK Collective, the inclusive activewear brand started by World Rugby Hall of Famer Phaidra Knight, which launched at kohls.com in May.
The retailer also offers a number of private-label brands. Men’s and women’s innerwear and loungewear by Calvin Klein, as well as Tommy Hilfiger men’s basics, both of which are owned by PVH Corp., are available at Kohl’s store and online. So is men’s and women’s apparel by Eddie Bauer and footwear by Cole Haan.
Gass called out Levi’s, Ugg and Hurley as some of the best-performing national brands.
But perhaps the biggest tailwind comes from the newly launched partnership with Sephora. There are currently about 200 Sephora shops-in-shop in Kohl’s stores, the first of which opened in August. The company anticipates there will be approximately 850 Sephora shops-in-shop in Kohl’s stores by 2023.
Gass said there’s been a lift in overall revenues at locations where Sephora shops-in-shop launched.
“This is a game changing partnership for us, consistent with our strategy to add tremendous credibility to Kohl’s as a more youthful, upscale and modern retailer,” Gass said on the call. “This is fundamentally transforming our brand and our business. We’re finally in the beauty business. It’s prestige; it’s making us an even more relevant, youthful retailer. And then on top of that, we’re going to build a very big beauty business. In short, Sephora at Kohl’s is working.”
The mini Sephora locations are also helping drive customer acquisition. More than 25 percent of Sephora shoppers are new to Kohl’s, the CEO said. Many of them are younger than existing Kohl’s consumers.
Headwinds include the women’s business (inventory in the women’s business was down “significantly more” than 25 percent in the most recent quarter, compared with 2019’s third quarter, Jill Timm, Kohl’s chief financial officer, said on the call), as well as continued supply chain disruptions throughout the industry.
“Like many, our business has been impacted by extended transit times, resulting in inventory receipt delays and significantly higher transportation costs,” Gass told analysts. “We have aggressively implemented a number of measures throughout the supply chain to mitigate and minimize production and transit delays. We also made sure that we protected new brand receipts and inventory tied to key promotional events. While it will take time for inventory to rebuild, I’m confident that the team is doing everything they can to mitigate the supply chain challenges as effectively as possible.”
On the former, Gass said the partnership with Reese Witherspoon’s brand Draper James, coming to Kohl’s next spring, will help. So will amplifying private brands and introducing new national brands to the mix.
“However, received delays have impacted the women’s business disproportionately, hindering our ability to drive overall growth to our expectations,” she said. “We continue to work aggressively to address the situation, but acknowledged within supply chain challenges will likely continue to present a headwind.
“We do expect [supply chain headwinds] to improve sometime over the course of the next year,” Gass continued. “We have front loaded orders; we have moved production around. We’re expediting delivery, really doing everything we can to where we have pockets where we’re just two lanes to get back into stock.”
Kohl’s ended the quarter with $1.87 million in cash and cash equivalents and $1.9 million in long-term debt. There are more than 1,110 Kohl’s stores in 49 states, in addition to the retailer’s e-commerce business.
The company is planning an investor day in March.
Shares of Kohl’s are up approximately 114 percent, year-over-year.
“All of the pieces of our strategy are coming together and we remain incredibly confident in the future of our business,” Gass said.