Kohl’s cuts outlook as higher costs ensnare another retailer

Kohl’s Corp. tumbled after slashing its profit and sales outlook, piling onto an already tough week for retail companies as inflationary pressures cut into profits.

The department-store chain now expects fullyear earnings per share, excluding some items, in the range of $6.45 to $6.85, Kohl’s said in Thursday in conjunction with its firstquarter earnings release. That’s down from a February forecast of $7 to $7.50. Sales are projected to be flat to up 1% this year, compared with the prior view of 2% to 3% growth.

Retail giants Walmart and Target both also trimmed their profit forecasts this week, citing higher costs for transportation, merchandise and labor that weren’t fully offset by higher prices. The situation at Kohl’s is even worse, with the company grappling with a dropoff in sales on top of elevated expenses.

“Sales considerably weakened in April as we encountered macro headwinds related to lapping last year’s stimulus and an inflationary consumer environment,” Chief Executive Officer Michelle Gass said in the statement.

Shares of the Menomonee Falls, Wisconsin-based retailer fell 6.2% in New York trading at 9:33 a.m. The stock had slumped 30% in the 12 months through Wednesday’s close, while the benchmark S&P 500 Index was down 5% over that time. Kohl’s is under pressure to show improvement after management last week fended off an activist investor’s two-year push to overhaul the board. Kohl’s said Thursday that Goldman Sachs, its adviser, has engaged with more than 25 parties as it continues to review strategic alternatives. The board has requested fully financed final bids to be submitted in the coming weeks.

A surge in costs for freight, transportation and wages weighed on profit last quarter, Kohl’s said. The company said it also had to spend cash on its proxy battle last week and its sale process.

The closely watched metric of same-store sales fell 5.2% in the quarter ended April 30. Analysts were looking for a 1% gain, according to the average of estimates compiled by Bloomberg. The 200 stores with a Sephora beauty shop fared better, with low-single-digit growth for the quarter. By the end of the year, more than half of Kohl’s locations will have a Sephora.

Kohl’s said trends in May have “notably improved” with more favorable weather accelerating demand for spring merchandise.

Investors received a shot of ominous news late Wednesday when Kohl’s said that its chief merchandising officer is leaving the company immediately and its chief marketing officer will step down on June 1.

“The departure of two key executives in merchandising and marketing is, in our view, Kohl’s attempt at a sacrificial offering to appease investors,” said GlobalData analyst Neil Saunders. “The problem is that Kohl’s now needs to deliver this change in a very tough consumer economy.”