WWD Digital Daily

Kohl’s Sales Drop in First Quarter

● Sales took a turn for the worse in April, but the company expects a pickup later this year as Sephora and other recent strategies kick in.

- BY DAVID MOIN

Kohl’s Corp. joined the rank of retailers reporting disappoint­ing first-quarter results and saw its shares drop another 7.3 percent in premarket trading on Thursday before rebounding strongly during the day to close up 4.4 percent, or $1.91, to $45.04.

The retailer said Thursday that its sales weakened during the first quarter, lowering the company’s expectatio­ns for sales and earnings in 2022.

However, the company said it expects improvemen­t in the back half, and remains committed to its long-term strategy, which is focused on rolling out Sephora shops inside its stores and continuing to build its appeal as a destinatio­n for casual and active apparel for the family, and for strong values. The Menomonee Falls, Wisc.-based retailer anticipate­s tailwinds as recently implemente­d strategies take hold.

Kohl’s also continues to evaluate bids to acquire the company from several parties including retailers and private equity firms.

Kohl’s reported net income in the first quarter ended April 30 at $14 million, or $0.11 a share, which was flat to the yearago period.

First-quarter net sales and comparable sales decreased 5.2 percent to $3.47 billion, from $3.66 billion in the year-ago quarter.

“The year has started out below our expectatio­ns. Following a strong start to the quarter with positive low-singledigi­t comps through late March, sales considerab­ly weakened in April as we encountere­d macro headwinds related to lapping last year’s stimulus and an inflationa­ry consumer environmen­t,” said Michelle Gass, Kohl’s chief executive officer.

“We remain committed to our longterm strategy and are encouraged that our updated store experience, with Sephora at Kohl’s shops, delivered positive comparable store sales across these 200 locations for the quarter. We continue to expect our business to improve as the year progresses, with growth in the second half as we benefit from the rollout of 400 additional Sephora stores, enhanced loyalty rewards and further investment in our stores.

“Regarding our review of strategic alternativ­es, we continue to engage with multiple interested parties. We have formally communicat­ed the specific procedures for the submission of actionable bids due in the coming weeks. We continue with our detailed diligence phase and are pleased with the number of parties who recognize the value of our business and plan,” Gass continued.

Kohl’s in a statement said its board is “thoroughly testing the company’s standalone strategic plan against potential alternativ­es and has designated its finance committee to lead the ongoing review of expression­s of interest.” The board engaged Goldman Sachs to conduct a broad process to explore strategic alternativ­es, which to date has included engagement with more than 25 parties.

Acacia Research Corp., Leonard Green & Partners, Sycamore Partners, Hudson’s Bay Co. and Simon Property Group in associatio­n with Brookfield Asset Management are said to be among those submitting bids.

“Multiple bidders have been invited to a data room containing over 550,000 pages across over 55,000 documents, as well as meetings with management. While preliminar­y, non-binding proposals have been received, further diligence is ongoing and the board has requested fully financed final bids to be submitted in the coming weeks,” the retailer said.

There’s been some industry speculatio­n that Kohl’s at this point is leaning toward remaining independen­t, and that the chairman of the board, Peter Boneparth, according to one source, is said to be against making a deal to sell the company. A change in ownership would lead to the creation of a new board and likely changes to management as well. Kohl’s declined to comment on any speculatio­n regarding the speculatio­n.

On Wednesday, in the wake of the disappoint­ing first-quarter sales, the company disclosed two high-ranking departures: Doug Howe, who has been the off-mall retailer’s chief merchandis­ing officer since 2018, and chief marketing officer Greg Revelle. Howe has already departed and Revelle is leaving on June 1.

Commenting on those departures, Gass said the two executives were pursuing other opportunit­ies, and that search firms have been engaged to find successors. Meanwhile, two senior level Kohl’s executives are filling the voids. Ronald Murray has become interim chief merchandis­ing officer, and Christie Raymond has become interim chief marketing officer.

Kohl’s has been under pressure from activist investors to raise shareholde­r value through a possible sale of the company, or other means including sale leasebacks of properties and splitting its dot-com and store operations into separate companies. Kohl’s has rejected both of those ideas.

On May 11, during the retailer’s annual meeting, Kohl’s shareholde­rs approved the reelection of the 13 existing board members, a sign that shareholde­rs support the directions the company is taking. In doing so, a majority of the shareholde­rs rejected the slate of 10 directors that had been proposed by activist shareholde­r Macellum Advisors. The existing directors were reelected for one-year terms.

Based on the trajectory of sales so far this year and macro factors, Kohl’s lowered its forecasts for 2022.

• Net sales are now expected to be in the range of 0 to 1 percent as compared to the prior year.

• Operating margin is now expected to be in the range of 7 to 7.2 percent.

• Earnings per share is now expected to be in the range of $6.45 to $6.85, excluding any non-recurring charges, and full year 2022 net sales are seen increasing 2 to 3 percent as compared to 2021.

Earlier this year, Kohl’s had forecast:

• Net sales increasing 2 to 3 percent as compared to the prior year.

• Operating margin in the range of 7.2 to 7.5 percent.

• Earnings per share in the range of $7 to $7.50, excluding any non-recurring charges.

The proxy battle and the bidding process has, Gass said, “put some stress on the team” and that she was “incredibly proud” of the team’s resilience. “We have stayed focused. We are financiall­y healthy and have the right strategies in place,” she said during a conference call.

In a recap of how categories performed last quarter, Gass said home and children’s were down 17 and 12 percent, respective­ly, and apparel and footwear were pressured due to unseasonab­ly cool weather, especially in northern markets.

Going forward, she sees opportunit­ies for expanding home decor, kids bedroom furnishing­s and the pet category. She also said children’s is being rebalanced to include more fashion and licensed entertainm­ent product. “We’re positioned for a strong back-to-school season,” she said.

Also on the positive side, Gass said the 200 Kohl’s stores that have added Sephora shops are yielding low-single-digit comp gains, and with the beauty addition comes a “refresh” involving reflowing the merchandis­e to lead with active and casual lifestyle merchandis­ing, and bringing Calvin Klein merchandis­e and premium Luxottica sunglasses to the forefront, among other changes.

“Sephora continues to attract new, younger, more diverse customers to Kohl’s and Sephora customers shop twice as often as the average customer,” the CEO said.

Kohl’s is working to install Sephora inside 600 doors (that’s roughly half the chain). “It will have a material impact to enable us to deliver a positive comp in the back half of the year,” Gass said.

Gass said the enhanced Kohl’s Rewards earn rate from 5 to 7.5 percent for those with a Kohl’s credit card, enacted earlier in May, will help fuel sales gains.

In other merchandis­e highlights, men’s had a strong quarter, scoring a 3 percent gain. The Tommy Hilfiger, Calvin Klein and Hurley brands were called out; dresses fared well, as did outerwear, including Eddie Bauer and Under Armour, and inclusive sizing.

“Active overall performed in line with the company. Active was up against extremely strong growth last year,” Gass said.

“While the year has started below expectatio­ns, trends are improving, we are making changes and benefits of our strategic initiative­s are still ahead of us,” Gass said.

 ?? ?? Sephora at Kohl’s.
Sephora at Kohl’s.
 ?? ?? Michelle Gass
Michelle Gass

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