Dive Brief:
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Kohl’s on Thursday reported that Q1 net sales fell 5.3% year over year to $3.2 billion, with comps down 4.4%.
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Gross margin expanded by 48 basis points to 39.5%. The department store swung to a $27 million net loss from net income of $14 million last year.
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Kohl’s lowered its guidance for the year, now estimating that net sales will fall 2% to 4% and comps will fall 1% to 3%. Previously the expectation was for net sales to land between a 1% decrease and a 1% increase, and for comps to range between flat and a 2% increase.
Dive Insight:
Despite Q1 results that he said missed the company’s own expectations, Kohl’s CEO Tom Kingsbury told analysts that its strategy remains on track and asked for patience.
Kohl’s turnaround is pinned to “enhancing the customer experience, accelerating and simplifying our value strategies, managing inventory and expenses with discipline and further strengthening our balance sheet,” he said, adding, “efforts of this scale take time.”
He called out the company’s expense and inventory management as already making progress. Selling, general and administrative expenses fell 0.8% year-over-year to $1.2 billion, and, at quarter end, inventory was down 13%, per a company press release.
Kingsbury said the company’s strengths in the quarter were obscured somewhat by a high level of clearance activity, which dragged comps down by 600 basis points. That effort helped unload excess inventory and was largely accomplished during the quarter, so there will be less clearance pricing going forward, executives said. Meanwhile, merchandising efforts to expand home, dresses and gifting yielded fruit and more often fetched full price, they also said.
Other strengths are derived from the company’s partnerships, most notably its in-store Sephora shops and more recently a tie-up with Babies R Us.
But GlobalData Managing Director Neil Saunders called the clearance sale “lackluster,” which he said “underlines issues with the quality of inventory and the fact customers are drifting elsewhere for bargains and deals.”
Moreover, Kohl’s is behind in upgrading its stores, at a time when Macy’s and J.C. Penney have stepped up such efforts, according to Saunders. Kohl’s has lost some 1.3 million customers over the past 5 years, per GlobalData research.
Kingsbury on Thursday described some store improvements, including placing juniors racks near Sephora to encourage cross-shopping, expanding gifting areas and amplifying on-trend apparel in juniors. Otherwise, though, the company is focused on the totality of its business and is sticking to regular store maintenance.
“We're not going to have any major remodels or any resets in stores right now,” he said.
Previously Kingsbury noted that Kohl’s strength lies in its stores, and Thursday he reiterated that the company is working on its e-commerce website, including making improvements to search and product recommendation. In Q1, brick-and-mortar sales slightly outperformed digital, and the goal is to have them perform equally well, he said.
Stores may need more attention than that, however, according to the GlobalData report.
“Kohl’s management team is competent, and it says a lot of the right things around merchandising and the essentials of retail. However, we need to see these plans come through much more strongly as, at present, there is too little change on the shop floor,” Saunders said. “Until this is delivered in a tangible way, Kohl’s will continue to bump along the bottom and will continue to cede market share and customers to sharper operators.”
