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Dive Brief:
With an interim chief executive at the helm — after recently appointed CEO Ashley Buchanan was fired in early May over conflicts of interest — Kohl’s reported that Q1 net sales fell 4.1%, with comps down 3.9%.
Results beat expectations as Kohl’s beefed up its bottom line in the period. Gross margin expanded by 37 basis points to 39.9%. Net loss shrank by 44.4% to $15 million.
Inventory was up 1.7% compared to a year ago in part because the retailer pulled forward receipts to avoid tariffs, Chief Financial Officer Jill Timm told analysts Thursday.
Dive Insight:
The turnaround strategy outlined by executives Thursday morning didn’t differ from the one the retailer presented two chief executives ago.
In November, then-CEO Tom Kingsbury said that the retailer would walk back some of the tactics it had been employing after they backfired with loyal customers. Kingsbury said that jewelry displays removed to make room for Sephora shop-in-shops would return, and petites and private labels would both be expanded after being pared back. During the only earnings conference he led, covering Q4, Buchanan said the company “could have done both when you look at it in retrospect.”
Speaking to analysts Thursday, Timm and interim CEO Michael Bender said that various reversals have rolled out in recent months. As of April, the company is also allowing coupons to be used with more brands, and moving its juniors displays near its Sephora concessions, Timm said, the latter an idea floated in August.
“The most notable area we are correcting is our jewelry business, which we displaced as we rolled up Sephora in our stores,” Timm said. In Q1, Jewelry sales were up 10%, driven mainly by Kohl’s card customers, and petites sales were up by high teens.
Sephora remains a mainstay of the retailer’s store operations, and in the spring the company will open the last 105 shop-in-shops. In Q1, net sales at that business rose 6% and comps rose 1%, Timm said.
Also in the period, Kohl’s decided to expand another Kingsbury initiative from 2024: impulse queues at checkout. The setup will go into another 613 stores, putting an impulse queue line in nearly all stores, Timm said.
But these improvements don’t fix the fact that Kohl’s has suffered a “very long line of poor results,” according to GlobalData Managing Director Neil Saunders.
“The declines at Kohl’s are not some chance occurrence, nor are they primarily the result of a difficult market,” he said in emailed comments. “They stem from poor management decisions, a serious neglect of retail fundamentals, and a lack of any coherent vision of how to take the company forward.”
In order to get back on track, Kohl’s still needs to address woeful merchandising at many stores; an overabundance of inventory without enough differentiation; and many overpriced goods that undercut Kohl’s value proposition, Saunders said. Meanwhile, the turmoil surrounding the chief executive seat could make it difficult to find someone to lead the company.
“So far, we have not seen much evidence that Kohl’s has any grand plan or vision, and the concern is that this won’t come into play until a permanent CEO has their feet firmly under the boardroom table,” he said. “Finding a new CEO might be difficult as while Kohl’s is a very interesting challenge, it is not the best prospect to work for.”
On Thursday, Timm asked for patience.
“This is a turnaround and will continue to take time,” she said.