Kohl’s Corp., faced with softening consumer demand, saw steep declines in both the top and bottom-lines during the second quarter which fell in line with the retailer’s expectations.
Net income for the period ended July 29 was $58 million, or $0.52 per diluted share. This compares to net income of $143 million, or $1.11 per diluted share in the prior year.
Operating income was $163 million compared to $266 million in the prior year. As a percentage of total revenue, operating income was 4.2 percent, a decrease of 233 basis points year-over-year.
Net sales decreased 4.8 percent to $3.7 billion, from $3.86 billion in the year-ago period. Comparable sales were down 5 percent.
Tom Kingsbury, Kohl’s chief executive officer, said, “Our second quarter earnings were in line with our expectations. We maintained strong sales momentum in Sephora at Kohl’s, reduced inventory by 14 percent, and managed expenses tightly. Further, solid cash flow generation allowed us to reduce our borrowings in the period.”
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“Many of our strategic efforts are just underway, which we expect will contribute incrementally in the back half of the year, and even more so in 2024 and beyond,” Kingsbury added. “We have enhanced the store experience and recently opened an additional 200 Sephora at Kohl’s shops, and are taking steps to further optimize our assortment and simplify our value strategies. Looking ahead, we are reaffirming our 2023 guidance and remain confident in our longer-term opportunity. I want to thank the entire Kohl’s team for their efforts to support and drive improved Kohl’s performance.”
Key competitors to Kohl’s, including Macy’s and Target, also reported second quarter top-line declines, citing softening consumer demand, though Walmart, abetted by its strong grocery offerings, posted gains.
Historically at Kohl’s, back-to-school revenues have represented a bigger percent of the overall annual volume, compared to competitors. That’s by virtue of Kohl’s being consistently among the most promotional of retailers offering strong values, and maintaining a one-stop-shop family appeal. At the start of the back-to-school season, Kohl’s executives told WWD the store would be offering more ways for customers to save money, and that it simplified its value messaging so shoppers can readily understand the deals being offered. The marketing has also been emphasizing versatility, meaning how key back-to-school fashion items can be outfitted in different ways and worn for different occasions. Strong values have been offered in T-shirts, denim, sneakers, backpacks, utility cargo bottoms,
In other financial results for the quarter at Kohl’s, inventory was $3.5 billion, a decrease of 14 percent year-over-year. Gross margin as a percentage of net sales was 39 percent, a decrease of 61 basis points.
For the year, Kohl’s is projecting a 2 to 4 percent decrease in net sales, including the impact of the 53rd week which is worth about 1 percent year-over-year. Operating margin is seen at about 4 percent.
Diluted earnings per share are projected in the range of $2.10 to $2.70, excluding any non-recurring charges. Capital expenditures are seen at between $600 million to $650 million, including expansion of the Sephora partnership and store refresh activity.
This story was reported by WWD and originally appeared on WWD.com.
