Dive Brief:
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Kohl’s Chief Marketing Officer Greg Revelle will depart the company June 1. Chief Merchandising Officer Doug Howe's departure is effective immediately, per a Securities and Exchange Commission filing. As the company searches for their replacements, Christie Raymond, who leads customer insights, analytics and engagement, and longtime Kohl's merchant Ronald Murray will step in, CEO Michelle Gass told analysts Thursday.
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The retailer, whose board last week withstood a challenge from activist investors, said in another filing that it has received non-binding proposals to be acquired and has requested fully financed final bids to be submitted in coming weeks.
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In that report Kohl’s said Q1 net sales and comp sales each fell 5.2% year over year, total revenue fell 4.4% to $3.7 billion and gross margin contracted 69 basis points. Operating income tumbled 70%, as net income stayed flat at $14 million. Inventory was up 40%, per the filing.
Dive Insight:
Despite a rough quarter that led to lowered expectations for the year, Kohl's executives on Thursday struck an upbeat note as they detailed how they've grappled with macroeconomic headwinds, uncooperative spring weather, more cautious shoppers and rising costs.
The company's expanding tie-up with beauty retailer Sephora has been helpful in that effort, as evidenced by low single-digit comp sales growth in the 200 stores that have those concessions, Gass said during a conference call Thursday.
"We've said all along that the true incremental benefit from Sephora will occur over multiple periods as awareness and replenishment traffic builds," she said. "The Sephora performance during the first quarter indicates that this in fact is taking hold, and it gives us great confidence as we roll out another 400 Sephora at Kohl's shops by early August."
The 48 Sephora shop-in-shops that opened during the last week of April are exceeding expectations, she also said.
The partnership is also costly. Selling, general & administrative expenses rose 10.5% in the quarter, mostly due to the build-out of Sephora spaces, and Sephora merchandising accounted for much of the inventory surge. Moreover, the company's strategy depends heavily on it, GlobalData Managing Director Neil Saunders noted in emailed comments.
"The one thing Kohl’s continually points to is its partnership with Sephora," he said. "Before this it used to point to the Amazon returns arrangement. Both these initiatives are sensible, but they are the icing on the cake not the cake itself. The cake is Kohl’s core identity and offer and, on this front, there is very little movement."
Unless that turns around, that added traffic supplied by Sephora won't lead to sales any more than Kohl's Amazon return services have, or any more than it did at J.C. Penney, he also said.
Kohl's joins other retailers in reporting a rough first quarter, what Fitch Senior Director David Silverman called "the pinch of changing consumer behavior."
"Kohl’s disappointing 1Q earnings supports Fitch’s view that retail earnings expectations for 2022 will need to moderate, not just due to rising inflation but also an unwinding of consumer behavior which could negatively impact many consumer goods categories, including home," Silverman said in emailed comments, noting Kohl’s current weakness in the home category, which performed well through the pandemic but is now challenged by difficult comparisons and spending diverted to services.
But Kohl's may be worse off than rivals, with Credit Suisse analyst Michael Binetti noting that a comp sales decline last month despite inflation, which helped push up sales at TJX in the period, suggests market share loss. In fact Kohl's has lost share to Target and off-price retailers for a while, according to GlobalData.
Saunders criticized the exit of Revelle and Howe as an "attempt at a sacrificial offering to appease investors."
"It sends a message that management knows things aren’t quite right and wants to make changes. However, simply replacing people isn’t the answer," he said. "A holistic change in mindset is needed. The problem is that Kohl’s now needs to deliver this change in a very tough consumer economy. It is important that it succeeds as that is the only way of holding off some of the unhelpful plans of activists, whose ‘solutions’ to Kohl's problems are even worse than management's inertia."
