Dive Brief:

• Kohl's net sales grew nearly 70%, with total revenue just shy of $3.9 billion, as it made rapid headway toward recovery from last year's trials in the sector.
• Kohl's CEO Michelle Gass said in a press release that profits and sales beat company expectations. "We saw momentum build through the quarter, especially in our stores where we continue to elevate the experience," Gass said. 
• Kohl's gross margin more than doubled from last year. That helped the retailer return to the black, with net income of $14 million after posting a $541 million loss in Q1 last year, when its stores were temporarily shuttered due to COVID-19.

Dive Insight:

Kohl's revenue in Q1 was only 5% below that of the same period in 2019, showing how far it has gone in closing the gap between 2020's trials and pre-pandemic performance — which had its own challenges. 

The retailer is pushing forward with a broad-based merchandising revamp. On a conference call, Gass touted partnerships with Tommy Hilfiger, Calvin Klein and Eddie Bauer, the latter of which will come to 500 stores this year and help expand Kohl's reach in the outdoor category. Kohl's is also expanding its Lands End partnership to 300 stores. 

Of special interest to analysts and executives is Kohl's partnership with Sephora. Gass said that the tie-up will include many exclusive brands to Sephora shops at Kohl's and would, more broadly, "transform Kohl's into a leading beautify destination." 

As the company makes rapid progress on pandemic recovery, Kohl's paid down some half a billion dollars in long-term debt. That debt, too, was a legacy of the pandemic, with retailers across the board raising cash any way they could to survive the revenue shortfalls from closing stores. Paying it down represents another kind of progress for Kohl's and a sign of optimism. 

With a surprise Q1, which beat analyst expectations along with the company's own forecasts, Kohl's raised its guidance for the year. Management now expects sales to grow in the mid-to-high teens range and margins to expand by 5.7% to 6.1%.

Telsey Advisory Group analysts led by Dana Telsey noted that Kohl's sales beat analyst forecasts for Q1, but also said that even the company's raised projections for the year would leave it short of 2019's sales.  

As Kohl's tries to recover from 2020, the pandemic has left a mark on the retailer in other ways. Its digital sales remain elevated, with sales up 14% compared to last year and up 40% over 2019, Gass said in a conference call. Jefferies analysts led by Stephanie Wissink noted that digital penetration at 30% was lower than expected but in an emailed research note wrote that "we believe it could be temporary due to pent-up in-store shopping demand as store sales more than doubled" year over year.

Vaccines and stimulus rollout likely gave Kohl's a big push in Q1. The year ahead and general performance picture for Kohl's still has an element of uncertainty to it. 

In emailed comments, Neil Saunders, managing director with GlobalData, praised some of Kohl's initiatives, including the Sephora partnership, while also noting: "However, it arguably needs to move faster in execution, especially in creating a compelling experience in stores. While most Kohl's shops are reasonably neat and well-cared for, they are not always the most inspiring of destinations."