Kohl's slashes guidance on discouraging holiday quarter

Dive Brief:

Kohl’s Corp. said Wednesday that a disappointing holiday season has prompted the retailer to cut its earnings guidance for its fiscal 2016 period.
The change comes amid lower than expected sales for the quarter: Kohl's says its gross margin slipped due to the mix and timing of sales as well as the competitive promotional environment. In November and December, same-store sales decreased 2.1% from last year, and total sales for the period fell 2.7% from year-ago numbers.
Kohl's now forecasts $2.92 to $2.97 per diluted share compared to its previous guidance of $3.12 to $3.32 per diluted share. Excluding impairments, store closings and other costs, fiscal 2016 diluted earnings is expected to be $3.60 to $3.65 per share, down from its previous guidance of $3.80 to $4.00 per diluted share. The company will release its full Q4 and fiscal 2016 results Feb. 23.

Dive Insight:

Kohl’s is joining several other retailers reporting a tough holiday season, and while the company has struggled for quite a while in its turnaround, this 2016 holiday report carries an extra sting of disappointment considering that its Q3 results held flickers of hope: In early November, the discount department store reported third quarter profits of $146 million, or 83 cents per share, up from $120 million or 63 cents per share a year ago. Adjusted earnings and revenue beat Wall Street expectations, and Kevin Mansell, Kohl's chairman, CEO and president, even said that with a good handle on its inventory and expenses, prospects looked bright for the holidays.

Kohl's has done many of the right things to get to that optimistic place, inking deals with the likes of Under Armour and doll company American Girl, revamping its in-house apparel and home goods lines, and maximizing the appeal of its popular Kohl’s Cash loyalty program by developing a mobile app, including payment capabilities.

But Wednesday, Mansell said that good days were fairly sparse over the holidays. “Sales were volatile throughout the holiday season,” he said in a statement. “Strong sales on Black Friday and during the week before Christmas were offset by softness in early November and December.”

With the election over and the economy humming, consumer confidence has been high, but retailers like Kohl’s are suffering the effects of changing consumer priorities and the theft of market share by Amazon, according to retail analyst Ken Perkins, president of Retail Metrics. Plus, consumer confidence is working backwards for many retailers, as consumers leave new clothing and other small-bore purchases behind in favor of big-ticket items like cars, Perkins said.

“While Holiday 2016 was likely the best spending season we have seen since prior to the Great Recession, our concern is that consumer expenditures went increasingly to experiences and services not offered by traditional retailers, and will thus not show up in their results,” Perkins said in a note emailed to Retail Dive Wednesday. “Secondly, it was another promotional holiday season with increased pricing pressure from e-commerce retailers that likely kept a lid on revenue growth. Thirdly, the inexorable drive by Amazon for retail market share is coming at the expense of the entire industry, with department stores and specialty apparel chains being particularly hard hit. The e-commerce giant just had its best holiday ever and 2015 was a very good one for the company."