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Kohl’s posts surprise Q1 profit; Sephora helps fuel in-store sales

Kohl’s has more than 1,100 stores in 49 states.

Kohl’s Corp. reported an unexpected first-quarter profit and an increase in-store traffic as it efforts to turnaround its business gain some ground.

On the earnings call with investors, CEO Tom Kingsbury called out the chain's ongoing partnership with Sephora, noting it fueled a total beauty sales increase of 150% year over year. (Kohl's is expanding the Sephora at Kohl’s shops to over 900 locations by the end of this year.)

"We achieved mid-teens comparable beauty sales growth in the 200 Sephora shops opened in 2021, and the sales trends in the 400 shops opened in 2022 continue to exceed our plan," said Kingsbury, who was named permanent chief executive of Kohl’s in February, after being appointed interim CEO in December 2022, following the resignation of Michelle Gass, who left to become president of Levi Strauss & Co. 

 On the call, Kingsbury told analysts that Kohl's customers continue to shift back towards stores, and that the company is committed to capitalizing on new store opportunities over the long term. It opened two new stores in the first quarter, one of which was a relocation.

"During the balance of the year, we'll open five additional new stores for a total of seven in 2023," Kingsbury said.

To make room for additional productive selling space in the home and pet area, Kohl's is consolidating to one checkout area in most of its stores with a greater selection of impulse items.  It is adding self-checkout kiosks in 250 stores to support the move.

The department store retailer reported  net income of $14 million, or $0.13 per share, for the quarter ended April 29, compared with $14 million, or $0.11 per share, in the year-ago period. Analysts had expected a loss of $0.42 a share. 

Total revenue declined 3.9% to $3.57 billion, exceeding estimates of $3.55 billion. Net sales fell  3.3% to $3.36 billion, below estimates of $3.42 billion. Comparable sales declined 4.3%.

Gross margin improved to 39.0% from 38.3% and merchandise inventory fell 5.6% to $3.53 billion.

“Our first quarter results were in line with our expectations and represented a first step as we work to drive sales and earnings performance over the long-term,” stated Kingsbury in the earnings release. "We delivered margin expansion, as well as a 6% reduction in inventory. In addition, our stores business achieved productivity gains and Sephora at Kohl’s continued its sales momentum.” 

Kingsbury added that Kohl’s is making progress against each of its key 2023 priorities, which include enhancing the customer experience, simplifying its value strategies, managing inventory and expenses with discipline, and strengthening its balance sheet.

“While there is still work to be done and the macroeconomic environment remains challenging, we are affirming our 2023 guidance and continue to have conviction in Kohl’s longer term opportunity,” he  continued.

Kohl’s reiterated its full-year outlook, which calls for net sales to decline 2% to 4%, including the approximately 1% impact from having one more week of sales this year. It expects earnings per share to range from $2.10 to $2.70, excluding nonrecurring charges.

Kohl’s has more than 1,100 stores in 49 states.

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