Dive Brief:

• Kohl’s reported first-quarter sales and profit declines Thursday that badly missed estimates, and sent the retailer's shares down 7% in pre-market trading.

• Kohl's same-store sales fell 3.9% in Q1, missing analyst exceptions of a 0.4% rise, according to Consensus Matrix. Overall sales fell 3.7% to $3.97 billion, the retailer's first drop in six quarters.

• First-quarter profit was $17 million, or 9 cents per share, compared to $127 million or 63 cents per share year over year—a whopping decline of 87%. Excluding items, earnings were 31 cents per share.

Dive Insight:

Considering the troubles it's had with its turnaround, it's sometimes hard to remember that Kohl’s does have a lot of strengths.

For one thing, Kohl’s has extricated itself from the woes facing many American malls by setting up shop in small retail locations, where shoppers can park nearby and get in and out of Kohl’s stores quickly, notes Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates Inc. Kohl's locations typically cost much less to operated than mall-based stores, Davidowitz adds.

Like T.J. Maxx and J.C. Penney, Kohl's offers well-known and even some higher-end brand names at lower prices, unlike the store brands of a rival like Target. In addition, Kohl's has succeeded immensely with its loyalty program, which it has transitioned seamlessly into mobile and which Shelley E. Kohan, VP of retail consulting at store analytics firm RetailNext, called “brilliant” in an interview with Retail Dive earlier this year.

But Kohl's distressing first-quarter results illustrate that are still many pain points when shopping in its stores, which can be badly organized. Not to mention that Kohl's likely has too many stores after its rapid expansion several years ago. In February Kohl's said it would close 18 underperforming stores this year, representing less than 1% of its total sales, but that may not be enough, especially considering the retailer's ongoing difficulties. 

“We’re the most over-stored country, and there are several overwhelming problems,” Davidowitz told Retail Dive earlier this year. “People have less money and this economy isn’t helping. You cannot double your number of people in poverty in 10 years, build more stores, and not have some kind of gigantic shakeout. Kohl’s is slowing down because the middle class is getting killed.”

In a statement Thursday, Kohl's CEO Kevin Mansell acknowledged the challenges but said the retailer had to sacrifice profits in order to move excess inventory, and that it’s cost-cutting measures are paying off. 

“First quarter sales were challenging,” Mansell said. “Despite the sales environment, we were able to manage our gross margin and inventory levels consistent with our expectations as we took the markdowns necessary to clear excess inventory. We managed our expenses effectively throughout the quarter as every area contributed to our savings versus our plan."