Kohl's slashes guidance as sales and profits sag

Dive Brief:

Kohl's on Tuesday reported that first quarter total revenue fell 2.9% to $4.1 billion from $4.2 billion in the year-ago period, as store comps tumbled 3.4%, following a 3.6% rise a year ago.
The discount department store's gross margin contracted six basis points to 36.8% from 36.9% a year ago, according to a company press release. Non-GAAP net income fell 8% to $98 million from $107 million a year ago as reported net income fell 17% to $62 million from $75 million.
On Monday, the retailer announced "an exclusive, long-term partnership with Fanatics," for online sales, beginning fall 2019. The gear (licensed through major professional leagues, including the National Basketball Association, National Football League, Major League Baseball, National Hockey League and Major League Soccer, and collegiate properties including the National Collegiate Athletic Association), will be fulfilled and shipped by Fanatics, according to a Kohl's press release.

Dive Insight:

Kohl's took a beating Tuesday morning as the retailer pulled back on its full-year earnings guidance, from its previous estimate of $5.80 to $6.15 per share to between $5.15 and $5.45 per share. Shares slid some 10% in early trading.

On a conference call with analysts Tuesday, executives cited tariffs as a major obstacle to keeping prices competitive and expenses down. CEO Michelle Gass said store comps remain soft in the current quarter but are expected to pick up in the second half of the year. Weather hurt sales and home sales were challenged by rising competition in that category, she said. She also said the company is "excited" about taking Amazon returns, footprint-wide as of July, calling it the biggest initiative of the year, and said it's bringing in more Amazon devices to sell in stores. "It's all about driving traffic," she said. "We are expecting millions to benefit from this service." She also called converting that added traffic into actual sales a major priority.

The retailer may be in a good position to weather its tumble, although the performance in part was due to a weakening consumer, which is out of its control, according to GlobalData Retail Managing Director Neil Saunders. Executives said that promotional pricing will be part of their defensive play to grab back the market share "that we think we deserve."

Gass noted that some softness comes because fresh merchandise introduced a year ago had lost its luster. Saunders said that’s true for its tough year-over-year financial comparisons as well. "The question now is has Kohl's recovery stalled for good, or is this just a temporary downturn in performance?" he said in comments emailed to Retail Dive. "In our opinion, the jury is still out, but we tend to take a fairly favorable view – especially compared to other department stores – not least because of the various initiatives the company is putting into play."

Those include its millennial-focused Outfit Bar, further development of private labels that protect margins and differentiation and "the expansion of the Amazon returns program, [which] should help to boost footfall across the physical estate," according to Saunders. Its Fanatics tie-up, an expansion of an existing offer, is also good for both parties, according to Mousumi Behari, director of digital strategy practice at digital commerce and marketing solutions firm Avionos. Unlike the Fanatics storefront at Walmart.com unveiled in January, the gear will be sold alongside items from the likes of Nike and Under Armour, and each approach "presents pros and cons," she told Retail Dive in an email.

"What's crucial to note is that Fanatics is realizing the importance of getting in front of larger audiences by selling across various channels," she said. "We'll likely see more retailers worrying less about having their own branded storefronts, and instead, selling across marketplaces to grow revenue and maintain relevance."

But Kohl's is clearly facing a tougher year than 2018, and that will have to be "prudently" managed, Saunders said. That means staying away from acquisitions like the rumored one of furniture retailer At Home, "which would prove costly, distracting and do little to boost the core business," he warned.