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Kohl’s swings to loss; to test new pricing strategies in latest turnaround effort

Kohl’s reported a fourth-quarter net loss of $273 million.

Kohl’s Corp. reported a net loss and a sales decline in the holiday quarter amid an “inflationary environmnent” and offered weak guidance for the year ahead.

Kohl’s is tweaking its turnaround strategy under Tom Kingsbury, who was named CEO in February after serving in the post on an interim basis since December. On the earnings call with investors, he said it would take some time" to turn around the business as he looks to reduce the chain’s reliance on general  promotions without interfearing with its popular Kohl’s Cash program.

We will test everyday value pricing with a small percentage of our product assortment and, if successful, grow it appropriately in subsequent years,” Kingsbury told investors. “We fully recognize the sensitivities around pricing with our customers and we’ll approach this with great measure and flexibility.”

Kohl’s released its fourth-quarter results the day after it named industry veteran Dave Alves as president and COO.  The company has also appointed Nick Jones as chief merchandising and digital officer.

"Through these important actions, I am confident that we have the right plans, organizational structure and team in place to drive improved more consistent sales and earnings performance over the long term,” Kingsbury said.

Kingsbury told investors the company’s first priority is enhancing the customer experience, calling out its partnership with Sephora as an example. Kohl’s fourth-quarter total beauty sales increased 90%, with a high-single-digits percent comparable beauty sales growth in the 200 Sephora shops that opened in 2021 and better-than-expected sales in the 400 shops opened in 2022, Kingsbury said.

This summer, Kohl’s will open another 250 Sephora shops, bringing its total to more than 850 stores (in the standard 2,500 sq. ft.  space). In addition, the company is opening 50 smaller formats Sephora shops by the end of 2023, with a plan to roll out to the remainder of the chain by 2025.

“I recently met with Sephora leadership,” Kingsbury said. “And what I can tell you is that, one, we both are pleased with the partnership we’ve built and what has been accomplished in such a short period; and two, we both see immense opportunities to continue to drive sales and profitability in the future.”

Kohl’s also plans to “rebalance” portions of its assortment  to capture customers’ return to more normal purchasing behavior for their wardrobes, adding, for example,  more offerings across casual and career wear. It also plans a deeper dive into home and gifting.

 In terms of brands, Kingsbury said that Kohl’s  private brands are a “really important part of our business.”  But the company will spend a lot of time in 2023 improving its performance in the national brands as well.

"We stumbled a little bit in the national brands in ’22,” Kingsbury said. “But our goal is to have both national brands and private brands perform at a high level.

The department store retailer reported a loss of $273 million, or $2.49 a share in the quarter ended January 28, compared to net income of $299 million, or $2.20 a share, in the year-ago period. Analysts had expected earnings of $0.97 a share. Kohl’s said inflated product costs and clearance markdown prices hurt its profit margins.

Fourth-quarter sales fell 7.2% to $5.8 billion, missing expectations of $6 billion. Same-store sales fell 6.6%.

“Kohl’s fourth quarter results reflect meaningful proactive measures we took to better position the business for 2023, as well as sales pressure driven by the ongoing persistent inflationary environment,” stated Kingsbury in the earnings release.

For the full year, Kohl’s net sales decreased 7.1% year-over-year, to $17.2 billion. Comparable sales fell 6.6%. The company reported a net loss of $19 million, or ($0.15) per share, compared to net income of $938 million, or $6.32 per diluted share, and adjusted net income of $1.1 billion, or $7.33 per diluted share, in the prior year.

In comments, David Silverman, senior director at Fitch Ratings, said Kohl’s ended a difficult year characterized by “softening consumer spending on apparel and home, excess inventory, heightened promotions, management mis-execution and executive turnover.”

Kohl’s said it expects 2023 adjusted profit of $2.10 a share to $2.70 a share, below the analyst estimate of $3.17 a share. Sales are expected to range from a decline of 2% to a decline of 4%, including the impact of the 53rd week of the year that is worth about 1% year over year.

Looking ahead, Kingsbury struck a positive note.

“We are refining our strategy and re-establishing merchandise disciplines with a customer-centric focus across the organization,” he said. “I am confident that our efforts will drive improved, and more consistent, sales and earnings performance over the long-term.”

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

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