Kohl's cuts guidance and blames inflation on lower sales from middle-income buyers

Kohl’s cuts guidance and blames inflation on lower sales from middle-income buyers

People walk near the entrance to a Kohl’s department store in Doral, Florida, on June 7, 2022.

Joe Raedle | Getty Images

Kohl’s cut its financial forecast for the year again on Thursday, saying its middle-income customers were particularly pressured by higher inflation, which put a damper on sales of clothing, shoes and other discretionary items.

The retailer said shoppers are making fewer trips to stores, spending less money per transaction and opting more for Kohl’s lower-cost private labels.

Chief Executive Officer Michelle Gass said in a statement that the company is adjusting its business plans and taking actions to reduce inventory and reduce costs “to account for a softer demand outlook.”

Shares of Kohl’s fell during premarket trading even after Kohl’s beat analysts lowered earnings and earnings expectations for the fiscal second quarter as investors focused more on future guidance.

Kohl’s now sees its net sales fall 5% to 6% in fiscal 2022, compared to a previous streak of flat to 1% higher than a year ago. It also now expects adjusted earnings per share to be between $2.80 and $3.20, compared to previous expectations of $6.45 to $6.85.

Kohl’s bleak outlook follows the company ending talks to sell its business to The Vitamin Shoppe owner Franchise Group in late June as the retail environment deteriorated during the bidding process. For months, Gass and her team faced increasing pressure from activist investors to pursue a sale of the company.

At the time, Kohl’s cited a difficult financing and retail environment as impediments to reaching an “acceptable and fully enforceable agreement.”

Kohl’s news also comes in the same week that Walmart and Target both reiterated their full-year forecasts, even as their profits are under pressure.

Walmart said it saw more upper- and middle-income consumers visiting its stores looking for discounted items, boosting overall performance. However, Target’s revenues were weighed down by its efforts to clear out surplus merchandise at sharp price cuts before the holidays.

Kohl’s inventory levels in the last quarter were up 48% year-on-year due to lower sales. The company also said this increase was the result of its recent investments in beauty for its Sephora partnership and its strategy to pack and hold more goods.

Here’s how Kohl’s fared in its fiscal second quarter ended July 30, compared to what analysts expected, based on Refinitiv estimates:

  • Earnings per Share: $1.11 Adjusted vs. $1.03 Expected
  • Revenue: $4.09 Billion vs. $3.85 Billion Expected

Kohl’s net income for the three-month period ended July 30 plummeted to $143 million, or $1.11 per share, from $382 million, or $2.48 per share, a year earlier.

Revenue fell 8.5% to $4.09 billion, from $4.45 billion a year earlier.

Same-store sales, which track sales at Kohl’s stores that have been open for at least 12 months, fell 7.7%.

“While 2022 has proved more challenging than initially anticipated, Kohl’s remains a financially strong company,” said Gass.

The company said Thursday it has entered into an accelerated share repurchase agreement to repurchase approximately $500 million of its common stock.

Kohl’s also said it will stick with its previously announced quarterly cash dividend of 50 cents per share, payable to shareholders on Sept. 21.

Shares of Kohl are down about 31% so far this year, from the market’s close on Wednesday.

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