Analysis: Kohl’s doing what it takes to succeed; poised for ‘very solid’ year
With healthy uplifts on both the top and bottom lines, Kohl’s continues its run of good performance. The increases of 4% in total sales and 4.3% in underlying comparables are particularly impressive, not least because they come off the back of only modest declines last year. Good cost control and careful margin management resulted in a rise of 11.1% in operating income, with a lower interest and tax provision boosting this to a 40.4% increase in net income.
Admittedly, the sales increases, especially in comparable terms, have been flattered by a calendar shift in the company’s friends-and-family event. Even so, it is clear that this is only the cherry on top of growth that has resulted from a number of strategies designed to make Kohl’s more relevant and interesting to shoppers. In our view, these things are succeeding, and our data show a clear increase in Kohl’s share of shoppers across most markets.
Activewear has been a particular area of success which, given the general slump in the sector as a whole, is a positive outcome. Brands like Nike. Under Armour, and Adidas are proving popular among Kohl’s customers, and the expansion of some of these ranges to include assortments for activities like golf and swimming has boosted sales. Presentation of these key national brands has also been elevated as other in-store ranges have been pared back. We are confident that Kohl’s continued investment in its health and wellness proposition will give further momentum to this part of the business over the second half of the year.
Last quarter, Kohl’s proprietary brands posted relatively flat comparables, a somewhat disappointing outcome given the importance of having a strong own-label proposition. However, we have been encouraged by the actions the company has been taking to edit out underperforming lines and to invest in more popular brands like LC Lauren Conrad, where a well-styled summer collection helped to drive sales. As we move into fall, the revamped LC Lauren Conrad denim range should create further momentum along with interest in exclusive ranges like Simply Vera Vera Wang and Urban Pipeline.
A much stronger assortment, presented in a more compelling way are key reasons for Kohl’s success with customers. These have been underpinned by changes to the rewards program which have been rolled out as a trial across a number of markets. Initial results from this appear to be encouraging, with customers welcoming the simplified rewards structure and the greater access to sales events and promotions. We are confident that as the changes are made on a national basis, they will generate further uplifts in both customer traffic and sales.
As we move into the final half of the year and the all-important holiday season, we are conscious that Kohl’s will start to lap tougher prior year comparatives. The shift of the friends-and-family event will also create some headwinds. However, we believe that the company should be able to continue its good run of performance, not least because of a number of initiatives. These include new brand launches like PopSugar aimed at Millennials, and Lego and FAO Schwarz, which will help Kohl’s capture a larger share of the toy market. Meanwhile, convenience from programs like “buy online collect in store” will be welcomed by busy shoppers.
In short, we believe that Kohl’s is doing the right things to succeed. The buoyant market is helping it to produce better results, but it is also helping itself and is stealing customers from rivals like J.C. Penney. The company is operationally healthy and should have a very solid year.
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Kohl’s easily tops Street with strong Q2, raises outlook
Kohl’s Corp. exceeded analysts’ sales and earnings estimates for its second quarter led by strong apparel and footwear sales.
Kohl’s profit surged 40.4% to $292 million, or $1.76 per share, for the period ended Aug. 4. Analysts expected earnings of $1.64 a share.
Revenue rose 4% to $4.57 billion, ahead of the $4.26 billion forecast by analysts. Same-store sales rose 3.1%, the chain’s fourth consecutive quarter of positive comp gains.
“We saw strength across the business — both our store and digital channels, all regions of the country, and our proprietary and national brands,” said Michelle Gass, CEO, Kohl’s. “Our men’s and women’s apparel businesses led the company, followed closely by footwear. We also reported higher gross margin as a result of our ongoing focus on inventory management.”
Analyst Neil Saunders, managing director, GlobalData Retail, credited a stronger assortment, presented in a more compelling way, as key reasons for Kohl’s success with customers.
“These have been underpinned by changes to the rewards program which have been rolled out as a trial across a number of markets,” he added. “Initial results from this appear to be encouraging, with customers welcoming the simplified rewards structure and the greater access to sales events and promotions. We are confident that as the changes are made on a national basis, they will generate further uplifts in both customer traffic and sales.” (Click here for more commentary.)
Kohl’s raised its outlook for the full year but it still came up short. It now expects to earn between $4.96 and $5.36 per share, compared with a prior range of between $4.86 and $5.31 a share. Analysts were looking for earnings per share of $5.39.
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