Kohl's to close stores, cautions of full-year sales decline

Dive Brief:

Kohl’s Corp. Thursday reported a 20% decrease in Q4 profit and said it would close 18 underperforming stores, which represent less than 1% of total sales, nationwide after years of aggressive expansion.
Fourth quarter same-store sales rose 0.4% in the quarter, compared to 3.7% the same time last year. The slim growth marks the fifth straight quarter of positive same-store sales growth, CEO Kevin Mansell said in a conference call with analysts.
The retailer also warned that total sales may fall in 2016, forecasting full-year earnings that came below analysts' average estimate.
The retailer said it would also test smaller-format stores in seven U.S. cities and would add two “Off-Aisle” off-price stores in Wisconsin. And the retailer will open 12 Fila brand outlet stores, its first branded outlet effort.

Dive Insight:

Kohl’s is in the awkward position of making many of the right moves to get itself through a turnaround—yet finding that the fruits of its efforts remain elusive. The retailer is in the midst of its "Greatness Agenda," which includes mixing up merchandise and boosting its loyalty program.

Experts have told Retail Dive that Kohl’s merchandise mix, which includes several national brands, and its personalization program are key strengths.

Mansell addressed both in a call with analysts Thursday, saying that national brands accounted for 58% of sales last year. And he said that the retailer is focused on improving its personalization program because it allows the company to get more bang for its marketing buck.

That’s a key focus because “after payroll, marketing is our second biggest expense,” he said.

Another strength is Kohl's choice to set up outside of malls, unlike many of its department store competitors.

“They’re off the mall, they’re half the size, no multi-level, very efficient,” Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates Inc, recently told Retail Dive. “So their cost structure is dramatically lower than all the other department stores."

Closing stores, a move the retailer has avoided in recent years, underscores Kohl's focus on real estate, especially as it moves towards smaller stores and outlets.

The retailer has also invested a lot in omnichannel efforts like ship-from-store and in-store pickup of online orders, and Mansell said that tighter control of inventory will help those efforts. CFO Wesley S. McDonald told analysts that IT investment in its app will be “big.” The app's mobile conversion rate has improved 59%, evidence that it has been “well received by the customer.”

Mansell also addressed the possibility of the company going private, saying, “companies are successful in both ways. We’ve been very successful as a public company, but also as a public company” it’s had to focus on shareholder value. “There’s nothing new is happening there,” he said. “It’s really just a focus on shareholder value.”