Dive Brief:
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With one fewer week compared to last year, Kohl’s Q4 net sales fell 9.4% to $5.2 billion. Adjusted for the timing difference, comps fell 6.7%, with store comps down 3.1% and online comps down 13.4%.
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Gross margin edged up 49 basis points to nearly 33%. Net income plunged more than 74% year over year to $48 million.
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For the year, also with one fewer week, net sales fell 7.2% to $15.4 billion; adjusting for the week, comps fell 6.5%. Gross margin expanded 50 basis points to 37.2%. Net income dropped more than 65% to $109 million.
Dive Insight:
Under newly arrived CEO Ashley Buchanan, Kohl’s has entered a “yes, and” era.
Buchanan on Tuesday described a number of turnaround tactics that have been on the mark but at the same time undermined some of Kohl’s core strengths, saying more than once that the retailer, instead, can “do both.” That includes the department store’s move to improve stores (at the expense of e-commerce improvements), expand its Sephora partnership (at the expense of jewelry spaces) and beef up private labels (at the expense of brand names), he said.
“We could have done both when you look at it in retrospect,” he said of moving the jewelry counters to install Sephora shops.
Those shops remain important to Kohl’s, which opened another 140 of them last year, ending 2024 with Sephora at more than 1,000 locations. Comparable sales in Q4 rose 13% year over year at Sephora at Kohl’s, which sees an “opportunity to strengthen cross-shopping through assortment and loyalty enhancements,” according to an earnings presentation.
But Sephora’s strength only underlines Kohl’s weakness, analysts said.
Kohl’s holiday sales this year were below pandemic-era Q4 2020, and compared to 2019 net sales are down by just over 20%, according to GlobalData research.
“And this includes the growth from Sephora, which makes numbers for the core business even worse,” GlobalData Managing Director Neil Saunders said in emailed comments. “In our view, Kohl’s is a company stuck on a rollercoaster that only seems to dip downward.”
Kohl’s also said that “highly accretive margins [at Sephora] will remain a tailwind to overall company operating margin.” The year’s margin expansion was indeed probably thanks to a higher Sephora mix, according to Evercore ISI analysts led by Michael Binetti. Those analysts also see that accentuating Kohl’s poor performance, calculating that without Sephora sales, comps were likely down 9%.
Moreover, M Science data shows Sephora’s positive impact on Kohl’s sales to be diminishing as the shops have expanded to more stores.
“The premium in spending for Sephora at Kohl's products, as opposed to spending on Kohl’s other products, was down considerably versus the prior year period,” M Science equity analyst Matt Jacob said in emailed comments. “Furthermore, we saw the premium for Sephora at Kohls fall to a slight discount in January, once the gift giving season ended.”
