Why Kohl’s Woes Are Worsening Exponentially
Kohl's has been in a rough spot for awhile, however, now it's woes have been taken to the next level and are worsening exponentially.
This article is more than 2 years old
Kohl’s reported its financial results for the second fiscal quarter and the findings don’t look good. The department store chain slashed its full-year sales and profit forecasts, as customers continue to curb their spending. The retailer says it’s mostly middle-income folks who’ve been pressured by higher inflation which has put a damper on sales of discretionary items like clothes, shoes, and other apparel. Shoppers are also making fewer trips to stores, spending less money per transaction, and opting for the outlet’s less-expensive private brands.
Speaking to CNBC, Kohl’s Chief Executive Officer Michelle Gass said the company is adjusting its business plans and taking actions to reduce inventory and trim expenses. This will help to account for a softer demand outlook. “This year has turned out to be very different than we anticipated,” she told analysts during a conference call. Although the return to offices and social events coupled with resilient high-income consumers have buoyed sales of high-end fashion, the retailer, which leans toward more casual styles and caters to less affluent customers, is taking a bigger hit.
Shares of Kohl’s fell 7% in premarket trading, according to Reuters. Investors were more focused on future guidance, even after the company beat analysts’ lowered expectations for its fiscal second-quarter profit and revenue. It joined a host of retailers including Target and Best Buy to warn of a profit slump for the year. Decades-high inflation which has forced people to only spend money on necessities has left several stores with bloated inventories. As such, they’ve had to offload stock through steep discounts and clearance sales heading into the key back-to-school season.
Kohl’s is currently offering 80% discounts on its website, which is essentially a recipe for more financial woes in the next few months. The Wisconsin-based chain now expects 2022 earnings per share of $2.80 to $3.20, down from the $6.45 to $6.85 range estimated previously. According to Refinitiv data, analysts on average expect a profit of $4.06 per share. The bleak news follows the company’s termination of talks to sell its business to Franchise Group, as the retail environment deteriorated during the bidding process. At the time, the department store cited the difficult retail environment that formed obstacles to reaching an acceptable agreement.
The disappointing news from Kohl’s comes as Walmart reiterated its full-year forecasts, even as its profits are pressured. The grocery chain saw more high and middle-income folks visiting its stores in search of discounted items which helped its overall performance. “We’re pleased to see more customers choosing Walmart during this inflationary period,” CEO Doug McMillon told CNN Business. While the retailer still expects earnings to fall in the second half of the year, it now predicts a smaller drop in profit.
Meanwhile, Kohl’s inventory levels in the latest quarter climbed to 48% due to lower sales as the home goods division and children’s apparel underperformed. There was also a weakness in its junior assortment for younger women. However, the retailer said some of its excess stock stemmed from its recent Sephora partnership beauty investment, as well as its strategy to pack and hold more goods.
