Updated 4:12 p.m. ET March 11.
Ashley Buchanan, the new chief executive officer of Kohl’s Corp., started to lay out his private label-centric plans to help the retailer climb out of its hole on Tuesday — while delivering fourth-quarter results that showed just how much work lies ahead.
The retailer issued a dour fourth-quarter report marked by a 74 percent drop in net income, which fell to $48 million from $186 million in the year-ago period.
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Net sales in the quarter ended Feb. 1 fell 9.4 percent to $5.2 billion, with an extra week in the year-ago quarter making results look worse than they would have otherwise. Comparable sales, which adjust for calendar changes, decreased 6.7 percent.
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This year, Kohl’s is projecting a 5 to 7 percent sales decline, with a 4 to 6 percent comp sales decrease.
The dismal forecast and fourth-quarter results dragged Kohl’s stock price down 24 percent to $9.15 in trading on Tuesday.
Looking ahead, Buchanan told analysts and investors on a conference call that Kohl’s private brands provide quality, value and exclusivity, and resonate with core customers.
“We have an opportunity to reengage this customer by unlocking the full potential of our proprietary brands,” he said, citing Sonoma for apparel and FLX for activewear as two of the company’s best private brands. “Strengthening our proprietary brand offering is key to our success.”
Restoring discontinued categories and deals on coupons, is also part of the program for private brands going forward. The company will also be refocusing its attention on fine jewelry and petites.
Among other initiatives, Buchanan intends to:
- Reestablish Kohl’s as a leader in value and elevating promotions and “great” prices.
- Continue to prioritize Sephora, home decor and impulse areas where growth opportunities are seen.
- Simplify over-complex promotions and coupons by reducing the number of brands listed as excluded.
- Provide a more consistent experience at stores and online in part by keeping high-volume items in-stock.
- Reducing costs.
“Over the past few years, we have implemented a significant amount of change across our assortment, value strategies and store experience to attract new customers. While the intention of this strategy to engage a new customer has been important, it has also caused friction with our core customer,” Buchanan said Tuesday, in what was his first quarterly conference call since he became Kohl’s CEO in January. “We need to reprioritize our initiatives to deliver on these key tenants to better serve all of our customers, both new and existing.”
A turnaround of the business while “very achievable is going to take some time,” said Buchanan, adding that Kohl’s inventory through the third quarter has been largely bought already.
“There’s a lot of things around how we operate the store from a cost perspective, how we do promotions, how we [handle] our summer pricing and the proprietary mix are more short term [fixes],” he said. “The longer-term piece around the value proposition and how we go to market, we’re still developing. It’s a long lead time business, and so it takes a little bit of time to turn the ship.”
The turnaround effort, he said, will focus on “a curated, more balanced assortment that fulfills needs across all our customers, reestablishing Kohl’s as a leader in value and quality and delivering a frictionless shopping experience.…Our focus has been heavily weighted on new products to attract new customers, and we have de-emphasized the products and categories that our core customers love.” Getting specific, Kohl’s, he said, lost traction in fine jewelry, petites and proprietary brands.
“We will also continue to prioritize our key growth categories that are resonating with our customers, including Sephora, home decor and impulse.
“The things I laid out, they’re really short term and tactical. In that sense, I’m still creating the long-term strategy and the greater value proposition,” Buchanan said.
Kohl’s also reported that it has decided to reduce its quarterly dividend to 12.5 cents a share, from 50 cents a share, to increase the cash balance and invest in designated growth areas. The next dividend will be paid on April 2.
Last quarter, digital sales were generally weak, as were sales of home-related goods like floor care, bedding and kitchen electric appliances. On the other hand, fragrance, bath and body, skin care, gift sets, bridge and fashion jewelry, fashion accessories, home decor and impulse did well. Fresh receipts of private brand merchandise lifted the apparel businesses.
In January, the Menomonee Falls, Wisc.-based retailer announced the closing of its San Bernardino, Calif., e-commerce fulfillment center and 27 stores. Operating since 2010, the San Bernardino facility will shut down in May when the lease expires. According to the company, Kohl’s has expanded its capacity to fulfill customer orders from store locations and will no longer need the e-commerce fulfillment center.
Buchanan said there are very few stores in the chain that are not profitable, though he added “if you look inside the box [at] how we allocate space among categories, on products and adjacencies, I think we’ve lost a little bit of discipline, and there’s a lot of opportunity. A simple thing done recently, before I got here, is realigning casual pants next to the dress pants, and you saw an increase. It’s just how the traditional customer shops.”
A few years ago, Kohl’s started opening smaller units in the 33,000- to 55,000-square-foot range, compared to the standard 80,000-square-foot format. Buchanan said the smaller units have been doing “pretty well,” adding the downsized format is “still a work in progress. There’s a lot of opportunity,” on how the buildout is approached and what the return on investment is, the CEO said. “We’re still learning. But our workhorse is still 80,000 square feet and it’s a highly productive prototype.”
Capital expenditures this year will be between $400 million to $425 million, and will include investments to complete the rollout of Sephora shops inside Kohl’s stores, expand impulse queuing fixtures and omnichannel enhancements. Additionally, two smaller stores will open in the first quarter.
In his prepared statement, Buchanan said, “Kohl’s is built on a strong foundation that includes operating more than 1,100 conveniently located stores nationwide, serving over 60 million customers, with 30 million of those customers being Kohl’s Loyalty Members. Kohl’s has a tremendous opportunity to build on our strengths, address key areas of opportunity and better serve our customers every day.
“We have identified key areas of focus and are taking action in 2025 to reposition Kohl’s for future success,” Buchanan added. “Our customers expect great product, great value and a great experience from Kohl’s. I am confident that the areas we identified will deliver on what customers want and expect from Kohl’s.”
Buchanan became Kohl’s CEO after serving the same role at Michael’s. The last two CEOs of Kohl’s, Tom Kingsley and Michelle Gass were unsuccessful in their efforts to turnaround the business despite years of merchandise and store changes. Consequently, Kohl’s has been losing market share to stronger competitors including Walmart, Amazon and TJ Maxx.
For all of 2024, net income was $109 million, or 98 cents per diluted share, and adjusted net income totaled $167 million, or $1.50 per adjusted diluted share. This compares to net income of $317 million, or $2.85 per diluted share in the prior year.
Net sales decreased 7.2 percent year-over-year, to $15.4 billion. Fiscal 2023 included net sales of approximately $164 million from the 53rd week. Comp sales decreased 6.5 percent for the year.