Kohl’s Q2 Profit Rises Despite Sales Drop; Ups Profit But Lowers Revenue Guidance
Kohl’s Corp.’s turnaround strategy is still a work in progress.
The department store retailer posted a mixed quarter with better-than-expected earnings but continuing sales declines in its core categories.
“We have taken significant action to reposition Kohl’s for future growth,” said CEO Tom Kingsbury. “However, our efforts have yet to fully yield the intended outcome due in part to a continued challenging consumer environment and softness in our core business.”
Kohl’s has been actively working to transform itself through a variety of initiatives, from the ongoing rollout of in-store Sephora shops to an expanded and revamped home assortment. In another big move, the retailer has partnered to open 200 Babies"R"Us shops, with the first round opening earlier this month at Kohl’s stores in Woodland Park, N.J. and Brookfield, Wis.
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Kohl’s net income rose to $66 million, or $0.59 per share, for the quarter ended Aug. 3, from $58 million, or $0.52 a share, in the year-ago period. Analysts had expected earnings per share of $0.44 cents.
Net sales fell 4.2% to $3.73 billion, missing estimates of $3.81 billion. Comparable sales decreased 5.1%. Gross margin increased 59 basis points. Inventory declined 9%.
“During the second quarter, our customers exhibited more discretion in their spending, which pressured our sales even as customers transacted more frequently,” Kingsbury said. “This overshadowed strong performance in our key growth areas, including Sephora, home decor, gifting and impulse. “
Looking ahead, Kohl’s said it plans to capitalize on new opportunities such as its partnership with Babies“R"Us as well as continue to benefit from key growth areas.
“Our conviction in our strategy remains strong and our operating discipline, solid cash flow generation, and healthy balance sheet will continue to support us as we work to return Kohl’s to growth,” Kingsbury said.
For the full year, Kohl’s raised its outlook for earnings per share to $1.75 to $2.25, up from $1.25 to $1.85. But the company cut its comparable sales outlook to a decline of 3% to 5% from a decrease of 1% to 3%. It also lowered its sales growth guidance to negative 4% to 6% from a decrease of 2% to 4%.
Kohl's operates more than 1,100 stores in 49 states.
This article was originally covered in sister publication Chain Store Age.