Kohl's on Tuesday reported that third quarter total revenue rose 1.3% to $4.63 billion from $4.57 billion in the year-ago period, as comp sales rose 2.5% after a 0.1% increase a year ago, its fifth consecutive quarter of positive growth in that measure, CEO Michelle Gass noted in a statement.
Gross margin inched up to 37% from 36.8% a year ago as net income in the quarter rose to $161 million from $117 million in last year's third quarter, according to a company press release.
The discount department store raised its full-year earnings guidance, saying it now expects fiscal 2018 diluted earnings to be $5.16 to $5.36 per share, up from $4.96 to $5.36 per share, according to the release.
Kohl's presents a fairly low-key set of results in light of the healthy economy and unprecedented level of consumer confidence in the U.S. That "should have provided a little more upside to the numbers than has been delivered," according to GlobalData Retail Managing Director Neil Saunders.
Still, the retailer's store improvements and other new strategies appear to be paying off, especially in apparel. Kohl's has expanded its name-brand offering, improved its women's private label apparel and tied up with compelling partners like Popsugar, helping it compete with Target and setting it apart from J.C. Penney, Saunders said in comments emailed to Retail Dive.
"Although stores can be messy at times, they are far less cramped and crowded with products than they once were. Not only does this make browsing more pleasant, it also elevates the proposition and allows Kohl's to showcase key brands more effectively," he said. "The work to improve store merchandising stands in direct contrast to retailers like JC Penney where consumers are still greeted by a sea of merchandise."
Kohl's has defied many expert opinions that its Amazon concessions would be a self-inflicted wound. Instead, the discount department store has seen traffic rise in stores as a result of it and is expanding that program. That and its space-sharing partnership with Aldi do make sense, Saunders also said. "Although these might not be obvious moves, they are logical inasmuch as they help drive footfall to Kohl's stores — something that all retailers need to increasingly focus on as more sales migrate to digital."
The retailer is also leveraging stores for fulfillment, incentivizing customers to pick up in store through its popular Kohl's cash program. "Kohl's found that in addition to saving money on delivery costs, the company generates 20% to 25% in additional in-store 'attachment sales' from its BOPS and BOSS programs," according to a report from global retail real estate services company CBRE emailed to Retail Dive. And it's among several retailers aiming for the market share in toys left on the table by the demise of Toys R Us.
The company is set for the holidays, Gass said on Tuesday. "We experienced strength across our entire apparel business, and our focus on speed to market and inventory management are driving relevancy with our customers, resulting in sales growth, margin expansion, and clean inventory levels," she said of the quarter's results. "We are executing extremely well in our stores and our digital channels, and our efforts across the company have us well-positioned going into the fourth quarter."
But the retailer faces steep competition because it's up against off-price retailers with more robust supply chains, warns retail analyst Nick Egelanian, president of retail development consultants SiteWorks International. "Kohl's is mostly not attached to malls," he told Retail Dive in an interview, noting that's generally an advantage. "But it's smack dab [in off-price retailers' territory], which is a bad place to be because those are the winners. It's an even worse place to be if you were a full line department store like Sears or Penney."