Updated 4:56 p.m. ET May 29
Kohl’s Corp., continuing to press for a turnaround in the aftermath of firing its chief executive officer this month, managed to narrow its loss in the first quarter amid sales declines that weren’t as bad as expected.
The Menomonee Falls, Wis.-based Kohl’s reported a net loss of $15 million, or 13 cents per diluted share, for the period ended May 3, compared to a net loss of $27 million, or 24 cents per diluted share, in the year-ago period. Analysts projected steeper losses of 22 cents in the quarter.
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Operating income increased to $60 million in the first quarter compared with $43 million in the year-ago quarter. As a percentage of total revenue, operating income was 1.9 percent, an increase of 58 basis points year-over-year.
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Kohl’s also managed to slightly beat expectations on the sales side, reporting a decrease of 4.1 percent year-over-year, to $3.05 billion from $3.18 billion. Kohl’s was expected to report sales coming in at $3.02 billion. Comparable sales last quarter were down 3.9 percent.
Selling, general and administrative expenses decreased 5.2 percent year-over-year, to $1.2 billion. As a percentage of total revenue, SG&A expenses were 36 percent, a decrease of 32 basis points year-over-year.
The results pushed Kohl’s shares down 0.74 percent to $8.04 in trading on Thursday.
“Our first-quarter performance was ahead of our expectations and the actions we are taking are starting to make progress with early signs of a positive impact,” Michael Bender, Kohl’s interim CEO, said in a statement. “Our team is focused and motivated to deliver great products, great value, and a great shopping experience to our customers.”
On May 1, Kohl’s fired CEO Ashley Buchanan on grounds that he directed the company to conduct business with a coffee start-up called Incredibrew which was founded and run by his girlfriend, Chandra Holt. Kohl’s indicated that the terms were very favorable to the coffee company, and that Buchanan did not disclose his relationship with Holt. Buchanan also directed Kohl’s to enter into a consulting agreement with the Boston Consulting Group, where Holt was once an adviser.
Before he was fired, Buchanan came up with a turnaround plan for Kohl’s that had it bolstering proprietary brands, which generally provide greater value for shoppers and better margins for retailers. Sonoma for apparel and FLX for activewear are two of the company’s best private brands. Buchanan’s plan also called for restoring discontinued categories and deals within the private brand program, and putting more attention on the fine jewelry, home decor, petites, impulse items and Sephora beauty areas.
Although Buchanan was only CEO for about four months, much of what he was advocating to turn around Kohl’s remains in place. “The good news is we already have that plan in place for 2025 and we’re making good progress against this plan,” Bender said during a conference call with investors and retail analysts on Thursday. “Key priorities focused on the Kohl’s customer were identified last quarter.”
Jill Timm, chief financial officer, said: “The most notable area we are correcting is our jewelry business, which we displaced as we rolled out Sephora in our stores. This was a category that was highly penetrated by our most loyal Kohl’s Card customers. In fall, we reintroduced jewelry and rolled out 200 fine jewelry shops in select Kohl’s stores. In Q1, we saw a strong response to our jewelry business, with jewelry sales up 10 percent, driven mainly by our Kohl’s Card customer. We see more opportunity with this category.”
Timm also said that in women’s, Kohl’s over-assorted new brands. “As we move forward, women’s is focused on delivering more depth in essentials, improving assortment clarity in sportswear and making significant choice reductions as it divests from the market brands and invests into proprietary brands.”
She also said the company completed the rollout of petites to all stores and that that business last quarter was up in the high teens, driven by the introduction of Simply Vera Vera Wang and Lauren Conrad in petites.
Kohl’s continues to invest in Sephora and will open 105 Sephora small format shops at smaller Kohl’s stores to complete the rollout of Sephora to all 1,100 Kohl’s locations, representing a $2 billion beauty business for Kohl’s, Timm said. In the first quarter, fragrance, hair products and makeup performed best, while skin care didn’t perform as well.
In addition, Kohl’s has been aggressively rolling out Impulse queue lines and expects to have them in nearly all of its stores by the third quarter this year, Timm said.
Proprietary brands currently represent about 30 percent of Kohl’s business, and are underperforming the business as a whole. Timm said the company is moving to increase the percentage substantially but not to the 50 percent level Kohl’s once operated at. “We believe there’s a substantial opportunity for us to lean into our value-oriented proprietary brands to offer more relevance, value and quality to our customers,” Timm said. They also provide bigger margins for the store. “We are really missing that opening price point opportunity for our customers to shop us and we know that they, especially our core customers, look for that opening price point.”
Kohl’s is also seeking to strengthen promotions. “Promotions have become less impactful as a result of a growing list of brands that are excluded from the coupon. At the end of April, we began our initial phase to move more brands to be included in our coupons,” in time for back-to-school and holiday selling, Timm said.
Kohl’s has also made significant real estate changes this year, including the closure of its long-standing San Bernardino, Calif., e-commerce fulfillment center and 27 retail doors. The retailer operates roughly 1,100 stores, as well as e-commerce. Store layouts are changing, including adding accessory shops behind Sephora and moving the juniors business to the front of the store.
Also, Kohl’s has been examining square footage of stores. It’s not a one-size-fits-all situation. “We’ve tried many different sizes. We have a 64,000-square-foot store, a 55,000-square-foot store, a 35,000-square-foot outside of our normal prototype,” at over 80,000 square feet, Timm said. “We’ve really learned what makes the most sense for Kohl’s to be able to deliver the right assortment to the community. I would say maybe the 35,000-square-foot format is a little too small. And so, we’re kind of really focusing in on a 55,000-square-foot [format.] That’s a way for us to reach more communities that we’re not serving today.” She said she sees the potential to downsize some of Kohl’s 80,000-square-foot plus units, to achieve higher productivities.
The impact of tariffs looms large, but Timm said that since 2017 when costs at the border became more of an issue: “Our sourcing team has done a really nice job ensuring that we have a very diverse portfolio of countries that we leverage. And so we’re not overly reliant on any one country. They have been working tirelessly with our buyers to move our production to different countries, to the lower-tariff countries to help mitigate against those costs.” She also said that in certain categories seeing price increases, “We’ll adjust our orders down knowing that the velocity of that demand just won’t be there.”
Aside from getting fired, Buchanan must forfeit all equity awards he received from the company, including the recruitment awards made in January. And Buchanan must reimburse Kohl’s for a pro rata portion of his signing incentive in the amount of $2.5 million.
In his statement Thursday, Bender said: “I am honored to assume the role of interim CEO at such an important time for our company. Kohl’s has a tremendous opportunity to build on our strong foundation of over 1,100 conveniently located stores and a large and loyal customer base.”
Kohl’s affirmed its outlook for 2025, projecting net sales would decrease 5 percent to 7 percent with operating margins in the range of 2.2 percent to 2.6 percent and diluted earnings per share coming in at 10 cents to 60 cents.