NEW YORK — Kohl’s plans to cut inventory by roughly 5% this year, be more surgical with discounts and change how it showcases its merchandise to get shoppers to buy after the department store chain reported a big loss and a sales slump in the fourth quarter.
The Menomonee Falls-based retailer also issued an annual profit outlook that fell below Wall Street expectations as the company grapples with customers cutting back on discretionary items amid stubbornly high inflation.
Shares dropped as much as 10% before the opening bell Wednesday but clawed back some of those losses after Kohl’s executives detailed plans to energize its business.
A shopper arrives at a Kohl's store in West Des Moines, Iowa, on Feb. 25, 2021.
In a conference call with analysts, newly appointed CEO Tom Kingsbury said Kohl’s is making progress in cosmetics with its Sephora partnership, whose beauty shops were launched in 2021 and are being rolled out throughout the chain. However, he acknowledged that the department store chain has lost ground in other key categories.
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“Candidly, I know we can do better,” Kingsbury said.
A number of major retailers, Target, Walmart and Home Depot among them, have issued weaker financial outlooks for 2023 in a challenging economic environment for Americans. But Kohl’s, which has been under pressure from shareholders to revive sales, has been particularly hard hit because it relies heavily on sales of discretionary items like clothing and caters to middle-income shoppers more vulnerable to rising prices.
Yet industry analysts believe Kohl’s has made significant missteps.
‘Stop the rot’
Neil Saunders, managing director of GlobalData Retail, said that stores have grown messy and unappealing for shoppers.
“Over the holidays, shops should be inspiring and uplifting, enticing consumers into buying,” said Saunders. ”Unfortunately, Kohl’s were the exact opposite with messy merchandise, bad lighting, and uncoordinated ranges all contributing to a dispiriting and confusing experience.
“Sadly, this problem has been getting worse over time and it is one of the first things the new executive team should address if it wants to stop the rot. ”
The disappointing performance underscores the headwinds that Kingsbury faces. Kingsbury, who was interim chief executive, was named its permanent CEO last month. The Kohl’s board member took over for Michelle Gass, who was named president of Levi Strauss & Co. late last year.
New leadership
On Tuesday, Kohl’s announced that 30-year retail veteran Dave Alves will become Kohl’s president and chief operating officer, reporting to Kingsbury, in April.
Kohl’s is cutting the number of general merchandise managers almost in half, from four from seven, with hopes of making the company more agile.
The company is paying close attention to inventory levels, too. Retailers, including Kohl’s, had to slash prices last year as Americans shifted their spending from clothing to nights out, travel or, because of inflation, on buying necessities like food.
Kohl’s inventory was up 48% year-over-year at the end of the second quarter, and up 34% at the end of the third. Inventory was up 4% year’s end, the company said.
Kohl’s said it will be more targeted with sales, instead of discounting across the board. It will also pace targeted price cuts rather than at the end of a selling period so that it can continually refresh its merchandise.
Loss reported
The company reported a loss of $273 million, or $2.49 per share for the quarter ended Jan. 28. Industry analysts had projected per-share profits of 97 cents, according to a poll by FactSet, while the average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of $1.03 per share.
Sales fell a little more than 7% to $6.02 billion. Comparable-store sales — those from stores opened at least a year and online channels — slid 6.6%.
Last year during the same period, the company earned $299 million, or $2.20 per share, on revenue of $6.5 billion.
The company said that it expects net sales to be down anywhere from 2% to 4% for the year. It also expects profits to be $2.10 per share to $2.70 per share, excluding any non-recurring charges for the year. Analysts were expecting $3.17 per share.
For the fiscal year, Kohl’s reported a loss of $19 million, or 15 cents per share, on revenue of $18.1 billion.
For the prior fiscal year, Kohl’s reported net income of $938 million, or $6.32 per share, on revenue of $19.43 billion.
Photos: Retail during the pandemic
T-shirts that tell the story of Madison lakes are among the popular otems at Zip-Dang on Monroe Street.
Orange Tree Imports has been a part of Madison's retail scene for more than 45 years.
Even the smallest businesses have added e-commerce options during the pandemic.
Natalie Bass, co-owner and founder of Zip-Dang, said she adjusted to the pandemic by making masks, putting more of her inventory online and bringing her husband's T-shirt screening production into the store. She no longer has employees and has reduced the hours she is open.
The hand-sewn women's clothing made by Natalie Bass at Zip-Dang has always been a part of the store's website, but the rest of the store's inventory has also been added to the site as more people turned to online shopping.
Coffee mugs line the shelves at Orange Tree Imports where signage reminds visitors of social distancing.
At Vanilla Bean, customers began requesting smaller packaging as both professional and home bakers began making cakes, cookies and candy in smaller sizes and quantities.
Orange Tree Imports has been a part of the retail scene on Monroe Street for over 45 years, but over the past year has been challenged by the pandemic. Sales in 2020 were off by 38%, and the number of customers allowed in the store at one time was limited to five.
Social distancing reminders abound in Orange Tree Imports in Madison.
Shoppers at Vanilla Bean on Odana Road peruse the collection of cooking and baking inventory. The store, a staple in Madison since 1983, saw sales crash in spring 2020, but business has since rebounded as the pandemic has inspired more people to bake and cook.
Vanilla Bean, a supply depot for area bakers and candy makers, saw the pandemic strike on the cusp of Easter, graduation parties and wedding events in 2020. The Odana Road business scaled back its staffing and halted classes, but saw increased interest in home baking and cooking.
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