Dive Brief:
- Kohl’s Q3 net sales fell nearly 3% year over year to $3.4 billion, with comps down 1.7%, the department store reported Tuesday.
- Gross margin expanded by 51 basis points to 39.6%. Inventory of $3.9 billion was down 5% compared to last year. Net income plunged 64% to $8 million.
- The company has no plans to close locations beyond its usual annual review of store performance, CEO Michael Bender said on a conference call with analysts, adding that “well over 90% are profitable and productive for us.”
Dive Insight:
Despite the declines in Q3, Kohl’s executives struck an optimistic note on Tuesday. CEO Michael Bender, named permanent CEO this week after about six months on the job, said the retailer is making progress.
The project has entailed addressing longstanding problems as well as walking back failed turnaround initiatives from the past couple of years. That includes expanding private labels, returning some brands to its discount coupon policy, expanding petites and moving juniors near its Sephora spaces.
“Our focus in recent years has been around attracting a new customer, which unintentionally led to not fully catering to our core loyal customers’ needs,” Bender said. “Each quarter this year, we have made meaningful improvements to our assortment offerings, which have translated to an improvement in transactions, particularly from our core customers.”
Loyal customers had cut back on visits but never really abandoned the retailer, and they are again returning more often, Chief Financial Officer Jill Timm told analysts.
The department store upgraded its outlook for the second time this year. Previously, Kohl’s expected full-year net sales to fall 5% to 6% and comps to fall 4% to 5%; it now expects net sales to fall 3.5% to 4% and comps to fall 2.5% to 3%. Operating margin is expected to grow 3.1% to 3.2%, up from the previous 2.5% to 2.7% increase.
“With a new permanent CEO just announced yesterday, Kohl’s surprised the market with an encouraging 3Q report,” Fitch Ratings Senior Director David Silverman said in emailed comments. “While revenue and profitability trends remain negative, declines appear to be decelerating and the company raised its guidance for the year.”
The company is bolstered by what Silverman called “its reasonably positioned store base,” mix of private labels and brand names, and ability to dedicate some $400 million to capital expenditure. But Bender may need to usher in more radical change if Kohl’s is to rebound, according to GlobalData Managing Director Neil Saunders.
“Kohl’s may have a new CEO, but today’s weak results are a case of the same old story,” he said in emailed comments, noting 14 straight quarters of comp declines. “The good news is that we do have some confidence that Michael Bender wants to build a better Kohl’s and is trying to take actions to reverse years of decline.”
