Dive Brief:
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With the help of an extra week in the holiday quarter, Kohl’s Q4 net sales fell 1.1% year over year to $5.7 billion, with comps, excluding the extra days, down 4.3%. Other sales, including credit card revenue, were essentially flat at $246 million.
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Gross margin expanded to 32.4% from 23% the year before, with inventory down 10%. The retailers swung into the black with net income of $186 million, from a $273 million net loss a year ago.
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The department store also announced an exclusive licensing agreement with Babies R Us, now owned by WHP Global. The first shop-in-shops will open in August, with plans to expand to 200 stores in the fall.
Dive Insight:
Under CEO Tom Kingsbury, Kohl’s began re-orienting stores to boost impulse and gift purchases. That and improvements to stores overall helped the department store garner a Q4 comp result that was the best since 2010, he said. Expense and inventory control also paid off in the period, and fewer discounts helped bolster margins and move the company into the black, according to GlobalData Managing Director Neil Saunders.
“In this regard, Kohl’s management deserves praise as, operationally, there is now much more discipline around inventory management and buying,” he said in emailed comments, calling the inventory reduction “a marked improvement.”
But compared to pre-pandemic 2019, the department store’s sales were down 12.7%, as the wider retail market for non-food merchandise grew by some 24%, according to GlobalData research. Customers are increasingly turning to the more affordable assortments in apparel and home at discounters like Target and off-price stores like those run by TJX, Saunders warned.
The new Babies R Us tie-up recalls the retailer’s effort to entice new customers to its stores by adding Amazon returns and Sephora beauty shops.
“We see significant opportunity in the baby gear category, and partnering with Babies R Us is another example of how we are finding new ways to optimize our assortment and further establish Kohl’s as the go-to brand for families,” Kingsbury said in a statement.
The company expects the “cleanup” of its stores to lead to sales growth this year, Kingsbury said on a call with analysts. Initiatives like the new tie-up with Babies R Us and emphasis on gifting and home are helpful, but the improvements to stores touted by Kingsbury are not all that evident, and the comp sales boost seen in Q4 had more to do with easy year-over-year comparisons and contributions from in-store Sephora shops, Saunders said. In particular, the retailer has much further to go in improving its weak apparel offer, he said.
Kingsbury is on the case, telling analysts that Kohl’s is adding 700 dedicated dress shops and expanding juniors, men’s, footwear, accessories and handbags.
“So, with all that said, it's hard not to feel very confident about our growth in 2024,” he said. “We have a lot of things that are working and a lot of things that we want to continue to go after aggressively.”
Kingsbury’s team is both sensible and experienced, but turning the retailer around won’t be so easy, according to Saunders.
“We think the current plans can help to stem the tide of decline in the year ahead, but they are unlikely to produce stellar growth,” he said.
