Kohl’s Corp., facing inflation weary consumers not yet responding to the retailer’s series of merchandise upgrades, posted top and bottom line declines for the first quarter and cut its outlook for the year.
For the quarter ended May 4, Kohl’s suffered a net loss of $27 million, or $0.24 per diluted share, compared to net income of $14 million, or $0.13 per diluted share in the prior-year period.
Operating income fell to $43 million from $98 million in the year-ago period.
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Net sales decreased 5.3 percent to $3.18 billion from $3.36 billion in the year-ago period and comparable sales decreased 4.4 percent.
The company now expects net sales to decrease 2 to 4 percent, but earlier this year predicted net sales to range from a decrease of 1 percent to an increase of 1 percent. Diluted earnings per share are now projected in the range of $1.25 to $1.85, compared to the previous forecast of $2.10 to $2.70.
Investors were clearly disappointed by the results and the forecast being revised downward and pulled Kohl’s stock price down 23 percent to $20.90 in pre-market trading Thursday.
Kohl’s has been improving its assortment, including rolling out Sephora beauty and Babies “R” Us departments, adding pet supplies, Claire’s jewelry, and recently pumping up previously underplayed presentations of wall art, botanicals, storage, frames, glass, ceramics, gifting and impulse items such as candy, sunglasses, socks, small home decor and stationery. However, it remains to be seen whether Kohl’s can achieve its stated goal of capturing $2 billion in additional sales volume over several years through the various brand additions and assortment changes. Last year Kohl’s generated $16.6 billion in sales.
“Our first-quarter results did not meet our expectations and are not reflective of the direction we are heading with our strategic initiatives,” Tom Kingsbury, chief executive officer of the Menomonee Falls, Wisc.-based retail chain, said in a statement Thursday. “Regular price sales increased year-over-year, with early success in under-penetrated categories, positive trends in our women’s business, and continued strong growth in Sephora. However, lower clearance sales versus last year represented a more than 600 basis point drag on comparable sales. Importantly, we were able to deliver gross margin expansion, manage inventory down 13 percent and tightly control expenses in the quarter.” The gross margin increased 48 basis points.
“We continue to have high conviction in our strategy and believe that our key growth initiatives, including Sephora, home decor, gifting, impulse, and our upcoming partnership with Babies ‘R’ Us, will contribute more meaningfully going forward,” Kingsbury added. “That said, we recognize we have more work to do in areas of our business. We are approaching our financial outlook for the year more conservatively given the first quarter underperformance and the ongoing uncertainty in the consumer environment.”
In other forecasts for the year, Kohl’s comparable sales are now seen decreasing 1 to 3 percent in 2024, while earlier this year, Kohl’s forecast comparable sales to range from flat to up 2 percent.
Operating margin is now seen In the range of 3 to 3.5 percent, versus the earlier forecast for a range of between 3.6 percent and 4.1 percent.
