Dive Brief:
- Kohl’s Q4 net sales fell nearly 4% year over year to $5 billion and comps fell nearly 3%, a disappointing result that CEO Michael Bender on Tuesday said “presented clear opportunities.”
- Gross margin in the period expanded by 25 basis points to 33.1% and net income surged 160% to $125 million.
- The struggling department store is keeping a low-key outlook for the year, forecasting that net sales and comparable sales alike could drop as much as 2% or at best be flat to 2025.
Dive Insight:
Kohl’s is working on a host of changes to merchandising, pricing and marketing to address what have become chronic declines. For the full year, net sales fell 4% to $14.8 billion, with comparable sales down 3.1%. Gross margin expanded by 34 basis points to 37.5%, and net income rose 150% to $272 million.
But the company is ruling out major changes to its brick-and-mortar fleet.
Last year, the department store closed nearly 30 locations, and it is committed to an annual review of store performance. “Well over 90%” of those that remain are profitable, Bender told analysts Tuesday morning.
“I would not anticipate any sort of grand plan of ... taking stores out or adding stores at this point,” he said. “The focus for us is actually on optimizing what we already have, and we'll be focused on making sure that we continue to push the stores’ productivity as far as we can.”
That may be wise, as its stores are key to reaching customers.
“As Kohl’s implements its topline initiatives, the company benefits from its store base, supply chain infrastructure, vendor relationships and good liquidity – in 2025, cash flow was about $1 billion after capital expenditures of nearly $400 million,” Fitch Ratings Senior Director David Silverman said in emailed comments. “The company has the tools needed to execute its turnaround and 2026 will likely be a pivotal period to see if sales can finally stabilize."
Inside the store, Kohl’s is culling the number of choices it offers, while also offering assortments at better price points, including its recently introduced Deal Bar. In apparel, the retailer is focused on basics, dresses and activewear and expanding its private label portfolio. Its Jumping Beans baby line and FLX Kids children’s activewear line will be in all stores by Q2, executives said.
“The big thing that we want to make sure that we're going after is value,” Chief Financial Officer Jill Timm told analysts. “We know we serve the middle- to lower-income customer. We know they have to be choiceful with their discretionary spend.”
Right now, consumers are spending more elsewhere, according to GlobalData research.
“From our data, the central reasons for this are that they find the stores hard to shop, the assortments uncompelling, and the prices too high for what they are getting,” GlobalData Managing Director Neil Saunders said in emailed comments. “These things go to the heart of Kohl’s issues. It is a retailer that is simply not showing up in the right way for consumers who are increasingly discerning.”
The company’s muted guidance for the year doesn’t reflect a lot of confidence, though it does indicate that declines may be somewhat slower, analysts said.
“Guidance of down 2% to flat comps suggests the bleeding may be slowing, but it’s going to take time and sharp, consistent execution for Kohl’s to get back to level ground,” Emarketer principal analyst Zak Stambor said in emailed comments.
This will mean a major overhaul, probably beyond what Kohl’s leadership is describing now, Stambor and others said.
"Kohl’s is trying to reset the narrative. Management says it’s ending the year in a stronger position after focusing on ‘resetting the foundation’ to stabilize the business and improve execution. It’s sharpening its focus and rolling out a broad marketing push around its proprietary brands,” Stambor said. “But it still has a long way to climb out of the hole it’s in.”
Saunders similarly said that Kohl’s plans don’t appear to be “cohesive or disciplined enough” to be meaningful, yet in order to boost sales, the retailer needs “a complete rethink of the proposition.”
“The concerning thing is that as Kohl’s continues to wallow in its general disarray other retailers — like Target — are sharpening their acts,” Saunders said. “This will simply load more pressure on Kohl’s and means it slips further and further behind.”
