Kohl's buys turnaround time with profit boost

Dive Brief:

Kohl’s on Thursday reported first quarter net income rose 288% to $66 million or 39 cents per share, up from $17 million or 9 cents per share in the year-ago period. Q1 total sales fell 3.2% to $3.84 billion, from $3.97 billion in the year-ago period, according to a company press release. That fell short of FactSet analyst expectations, cited by MarketWatch, for earnings of 29 cents per share on sales of $3.91 billion.
Same-store sales fell 2.7%, beyond a FactSet expectation, cited by MarketWatch, for a 1.2% decline. Kohl’s ended the quarter with 1,154 Kohl's stores, 12 FILA Outlet stores and three Off/Aisle clearance centers in 49 states, compared with 1,167 Kohl's stores at the same time last year, the company said.
Kohl’s CEO Kevin Mansell in a statement Thursday said “strong inventory management” that led to gross margin improvements plus cost cutting brought the retailer its massive profit increase. "We are encouraged by the significant improvement in sales and traffic for the March and April period, after a weak February start to the first quarter,” he said.

Dive Insight:

Despite challenges facing department store retailers, Kohl's significant improvements to stores and merchandising helped drive traffic to the retailer in the period, says GlobalData Retail analyst Håkon Helgesen. But the discount department store has more to do to spiff up stores and make shopping in them easier, he added.

“Even with lower levels of inventory, many stores still look cluttered, and good products are often lost in a sea of merchandise,” he said in an email to Retail Dive. “The range localization strategy that Kohl's has been employing should help address this, but we do not believe that the full benefits of this are, yet, coming through.”

Kohl’s is balancing several sometimes diametric strengths — a strong set of private apparel labels and partnerships with key brands, for example. But its partnership with Under Armour may have come too late, Helgesen said.

“Unfortunately for Kohl's this introduction coincided with both a period of weaker demand for athleisure and heightened discounting in the sports sector thanks to a rash of store closures," he said. "We have no doubt that Under Armour has been helpful to Kohl's over this quarter, but we do not believe it lived up to its full potential.”

Fortunately for Kohl’s, the profit boost unveiled Thursday buys some time, which, unfortunately for Kohl’s, it desperately needs. “For all the changes and positive actions, Kohl's has still failed to grow its top line, and, worryingly, the pace of decline is accelerating,” Helgesen said, adding that comes from store closures, lower footfall in some places and to Kohl’s strategy.

“The improvement in profits buys Kohl's time to remedy these issues … [and] position the company to cope with a lower demand environment," he said. "However, they do not absolve the necessity of swinging the top line back into growth over the course of this year.”