Kohl's rises despite weak sales results, falling profit

Dive Brief:

Kohl’s on Thursday reported fourth quarter net income was $252 million, or $1.44 per share, down 15% from $296 million, or $1.58 per share in the year-ago period, beating the FactSet analyst expectation (cited by MarketWatch) for $1.33 per share. Q4 sales came in at $6.2 billion, down from $6.4 billion last year, but met expectations.
Q4 same-store sales were down 2.2% from the year-ago period and down 2.4% for the year, edging out the FactSet expectation for a 2.1% decline in the quarter. Kohl's board of directors raised its quarterly cash dividend 10% to 55 cents per share, according to a press release.
The company also said it expects earnings between $3.50 and $3.80 per diluted share for fiscal 2017, supporting a FactSet expectation for $3.66 per share. Full-year sales could decline 1.3% or rise 0.7%, and same-store sales are expected to decline 2% or remain flat.

Dive Insight:

The discount department store's better-than-expected results sent shares up more than 3% in early trading Thursday. Yet, despite intense loyalty from many shoppers, it is clear that Kohl’s is losing its appeal for many and that's hampering its turnaround effort. There is no doubt that Kohl's was one of many mall and department store retailers that fell victim to negative traffic trends over the holiday season, says GlobalData Retail analyst Håkon Helgesen.

“This reduced customer flow into stores to a degree that could not be totally offset by a better performance online," he said in a note emailed to Retail Dive. "However, while prevailing dynamics must take some of the blame, we also believe that Kohl’s fell off the radar of many consumers over the golden quarter. The blunt truth is that Kohl’s does not have the pulling power that it once did and needs to work much harder to provide points of differentiation that really resonate with customers.”

The discount department store is in danger of offering what is swiftly becoming commoditized merchandise — goods that could be found at many other places, according to analysts at Jane Hali and Associates. That includes its addition of the Apple Watch, Helgesen says. Macy’s, Target, Best Buy and others also sell the product. “To be fair, the company has been proactive in trying to create a more rounded and compelling proposition, and we applaud these efforts,” he said. “However, we also get the sense that Kohl’s is something of a follower rather than a leader."

Helgesen points to Kohl’s partnership with Under Armour as an example of a strong move — to a degree. “[W]e believe that the health and fitness proposition has been successful in helping Kohl’s sell more to its existing customers," he said. "However, we see it as being far less successful in drawing in new customers and bolstering visits from infrequent shoppers – which are two of the main problems Kohl’s is suffering from."

What Kohl's needs is to develop new ways of driving traffic back to the stores, Helgesen says, which could be done through in-store events, unique product offerings or experiences. Still, the discount department store's “pockets of reasonable trading” over the holidays and in categories like menswear and home goods suggest Kohl’s has a chance, though it has more work to do, Helgesen added.

CEO Kevin Mansell appears to be on the same page. “Sales results were weak for the quarter in total, driven by declines in brick-and-mortar traffic, and offset somewhat by strength in online demand,” he said in a statement on Thursday. “We saw improvement in merchandise margin, and our team continued to manage inventory and expenses extremely well. In 2017, we will accelerate our focus on becoming the destination for active and wellness with the launch of Under Armour in early March. We will also extend our efforts on improving our speed to market across all of our proprietary brands into all apparel areas and home.”