FINANCE

Kohl’s to be more aggressive in pricing on heels of disappointing Q1

BY Marianne Wilson

Kohl’s got off to a slow start in its first quarter, reporting its worst showing in same-store sales in three years and lowering its annual earnings guidance by more than 10%.

On a call with analysts, Kohl’s executives said the company plans to be more aggressive in driving top line sales to regain its momentum and grow market share.

“Given the competitive environment, we plan to be more aggressive in our pricing and promotions to drive topline sales during the balance of the year,” said Kohl’s CFO Bruce Besanko.

Net income fell 17% to $62 million, or 38 cents a share, in the quarter ended May 4, from $75 million, or 45 cents a share, in the year-ago period. Adjusted earnings per share declined to 61 cents from 64 cents, below analysts’ estimates of 68 cents.

Total revenue fell 2.9% to $4.09 billion, topping Street estimates of $3.95 billion. Same-store sales fell 3.4%, missing analysts’ estimate of a 0.15% dip. It was the chain’s first drop in seven quarters. The retailer cited damp weather that cut into spring clothing sales, soft home category sales and less productive key promotional events as impacting sales.

“The year has started off slower than we’d like, with our first quarter sales coming in below our expectation,” said CEO Michelle Gass. “We are actively addressing the opportunities that impacted our first quarter sales and we have strong initiatives that will enhance our sales performance in the second half. We are incredibly excited about our nationwide rollout of the Amazon returns program as well as several important brand launches and program expansions. While we are planning the year more conservatively, we continue to invest in our business and operate with a view on our long-term success.”

Kohl’s has been offering more exclusive merchandise and expanding its online services. In April, the chain announced it was expanding its partnership with Amazon, and would accept Amazon returns in all of its stores starting in July. On Monday, Kohl’s entered into an exclusive, long-term deal with sports apparel and gear marketplace Fanatics to broaden its online fan gear assortment beginning in fall 2019. And on Tuesday, it announced a collaboration with designer Jason Wu to create an exclusive, limited-edition women’s apparel collection for the holiday season, available in its stores and online in November.

Analyst Neil Saunders, managing director of GlobalData Retail, cited several factors in Kohl’s disappointing first-quarter sales performance, starting with a more sluggish consumer economy.

“Last year, shoppers were spending freely and were able and willing to make purchases of discretionary products,” Saunders said. “While demand has not dropped off a cliff, there has been a material tightening of conditions and sentiment this year and it has affected Kohl’s shopper base more than most. Some customers are buying less, others have cut out purchases entirely and this has resulted in much softer sales.”

Saunders said that Kohl’s also suffered from softness in womenswear the quarter.

“Some of this is down to economic conditions, some of it is down to the weather which was not conducive to new spring ranges, but some is also down to a bit of a lackluster assortment which seemed to lack ‘wow’ or ‘statement’ pieces which compel people to buy,” he said. (For more commentary, click here.)

Kohl’s cut its full-year adjusted EPS guidance range to $5.15 to $5.45 from $5.80 to $6.15.

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