Kohl’s narrows loss, beats Street; customers remain ‘stretched,’ trading down
Kohl’s Corp. topped Wall Street’s expectations, reported a narrower-than-expected loss and reaffirmed its outlook as its interim CEO pointed to early signs of progress in its turnaround efforts.
The struggling department store company reported its first-quarter results nearly one month after it fired its chief executive, Ashley Buchanan, for cause, citing an investigation that found he had violated company policies “by directing Kohl’s to engage in vendor transactions that involved undisclosed conflicts of interest.”
On the earnings call, CFO Jill Timm said that Kohl's has been diversifying the countries from which it sources products from since 2017, which has enabled it to offset much of the pressure from tariffs. She also told analysts that Kohl's customers remain "pretty stretched" amid a slowing economy.
"These customers are prioritizing value and are trading down into lower-price-point products,” Timm said.
The company reported a net loss of $15 million, or $0.13 a share, for the quarter ended May 3, compared to a loss of $27 million, or $0.24 a share in the year-ago period. Analysts had expected a loss of $0.25 a share.
Operating income increased to $60 million from $43 million in the year-ago quarter. As a percentage of total revenue, operating income was 1.9%, an increase of 58 basis points year-over-year.
Net sales fell 4.1% to $3.05 billion, down from $3.18 billion in the prior year’s quarter, topping Street estimates of $3.02 billion. Comparable sales decreased 3.9%.
“Our first-quarter performance was ahead of our expectations and the actions we are taking are starting to make progress with early signs of a positive impact,” stated Michael Bender, Kohl’s interim CEO. “Our team is focused and motivated to deliver great products, great value, and a great shopping experience to our customers. I am excited to lead this next chapter of Kohl’s and build on the momentum we have begun to generate.”
Under its turnaround plan, which was put in place by then-CEO Tom Kingsbury, Kohl’s has doubled down on proprietary brands and increased its focus on fine jewelry, home decor, petites, impulse items and Sephora beauty departments. The retailer will finish the roll out of the Sephora shop-in-shops this spring with the opening of some 105 shops.
"The most notable area we are correcting is our jewelry business, which we displaced as we rolled up Sephora in our stores,” Timm said on the earnings call.
According to a report by WWD, Kohl’s fired Buchanan on grounds that he directed the company to conduct business with coffee startup Incredibrew, which was founded and run by his girlfriend, Chandra Holt. Buchanan, who did not disclose his relationship to Holt, also directed Kohl’s to enter into a consulting agreement with the Boston Consulting Group, where Holt was once an adviser, the report said.
Kohl’s stuck by its full-year outlook for a net sales decrease of 5% to 7%, comparable sales to decrease 4% to 6%; and earnings per share in the range of $0.10 to $0.60.
