Kohl’s CEO Touts Transformation

Michelle Gass’ plan is coming together at Kohl’s Corp.

“We’re transforming the whole experience,” the chief executive officer told WWD on Thursday. “Q2 was a great quarter, we’re excited to see our sales return to pre-pandemic levels.”

Revenues for the three months ended July 31 bounced back 30.5 percent to $4.4 billion from $3.4 billion.

And net income tallied $382 million, up from just $47 million a year earlier when the pandemic kept shoppers closer to home. Adjusted earnings per share totaled $2.48, coming in well ahead of the $1.16 analysts projected.

Kohl’s was already working hard to change its business when the pandemic hit — and was able to use the disruption as a kind of standing start that has resulted in a business on the move.

“We have been working hard to not only drive the top line, but to drive greater profitability,” Gass said. “We have been fundamentally restructured…so that we can be more profitable.”

And that’s taking into account everything that comes along with a growing e-commerce business.

“We hit a 12.8 percent operating margin — it’s a 10-year high for the company,” said Gass, adding, “Today our penetration on e-commerce and the costs that go along with that are much higher than…10 years ago.”

Kohl’s is being much savvier in how it manages its inventory — from buying more carefully to using technology and analytics to have goods where they are needed most and when they’re needed most.

Retailers spent at least the last couple of decades caught up in a kind of arms race, where one chain would cut prices to draw customers and others felt compelled to follow to keep shoppers from skipping them over. The result was a sea of sales signs and big revenue numbers, but smaller profit margins all around.

Gass said that’s changed, at least for Kohl’s.

“Our sales were up 30 percent to last year and our inventory was just north of flat,” the CEO said. “This is the new normal for us on inventory management. This is the new way we’re running our business.”

And that is just one of the many mini revolutions happening at Kohl’s, which is working more closely with some high-profile friends — especially Sephora. The beauty giant just started setting up shop inside Kohl’s and is ready for the big ramp-up as the number of Sephora outposts in the retailer expands from four to 70 on Friday and to 200 this fall. By 2023, Sephora will be in at least 850 Kohl’s stores.

As the stores are being reset for Sephora, the retailer is highlighting its new offerings and pushing its emphasis on active and casual fashions.

Calvin Klein is in the process of launching intimates, basics and loungewear at Kohl’s and Tommy Hilfiger, another PVH Corp.-owned brand is coming soon. Eddie Bauer looks will also be added this fall. And on the footwear side, Cole Haan was recently launched.

Along the way, Gass is looking to move beyond the traditional dynamic between retailers and brand wholesalers.

“I like to talk about the brands we carry really as partners as opposed to vendor relationships,” Gass said. “It’s about business partners coming together. We’re better together than apart.”

In general, retailers are faring much better than many expected when the pandemic started last year. The initial wave of store closures and strict lockdowns were too much for many, prompting a wave of bankruptcies, but the stronger players have learned to live in the new world.

And so while Gass acknowledged the rise of the Delta variant, she expressed confidence that Kohl’s could power through.

“We’ve been operating in the pandemic for the last year and a half and we’ve learned a lot,” she said, pointing to safer precautions such as plexiglass barriers and masks and new approaches to selling like curbside pickup. “We’re just a lot smarter today than we were a year ago.”

Based on those learnings and results so far, the company is shooting higher for the year.

Kohl’s now expects sales this year to increase by a percentage in the low 20s, ahead of the mid-to-high teens boost seen earlier. And adjusted EPS is now seen ranging from $5.80 to $6.10, up from the $3.80 to $4.20 previously projected.