Kohl's Q3 Misses The Mark: Weak Sales And CEO Shake-Up Send Shares Down

Kohl’s Corp KSS shares are trading lower after the company reported third-quarter earnings.

The company reported a net sales decline of 8.8% year-over-year (Y/Y) to $3.507 billion, missing the consensus of $3.638 billion. Comparable sales for the quarter decreased 9.3%. Total revenue stood at $3.710 billion.

Gross margin for the quarter expanded by 20 basis points to 39.1%. Operating income for the quarter was $98 million versus $157 million last year. The operating margin contracted 120 basis points Y/Y to 2.7%.

Selling, general and administrative expenses decreased 5.1% Y/Y to $1.3 billion, and SG&A expenses margin stood at 34.8%, an increase of 125 basis points Y/Y.

EPS was 20 cents, missing the analyst consensus estimate of 28 cents.

Inventory at the end of the quarter was $4.1 billion, down 3% Y/Y. Kohl’s held $174 million in cash and equivalents as of November 2. Operating cash flow was a use of $195 million.

On November 13, 2024, Kohl’s Board of Directors declared a quarterly cash dividend of 50 cents per share, payable on December 24, to shareholders of record as of December 11.

Yesterday, Kohl’s disclosed that CEO Tom Kingsbury will step down on January 15, 2025.

He will remain in an advisory role to the new CEO and stay on the Board of Directors until his retirement in May 2025, after which the Board size will be reduced by one. The Board has appointed Ashley Buchanan as CEO, effective January 15, 2025.

Outlook: Kohl’s revised the outlook for FY24 EPS to $1.20 – $1.50 (from $1.75 – $2.25) versus the Street view of $1.80.

Kohl’s revised FY24 sales growth outlook to a decline of (7)% – (8)% from (4%) – (6%). The company now sees FY24 comparable sales decline of (6%) to (7%) vs. (3%) to (5%) prior.

Kohl’s now projects an FY24 operating margin of 3.0% to 3.2% (previous 3.4% – 3.8%) and continues to see capital expenditures of about $500 million, including expansion of its Sephora partnership and other store-related investments.

Tom Kingsbury, Kohl’s chief executive officer, said, “Our third quarter results did not meet our expectations as sales remained soft in our apparel and footwear businesses. Although we had a strong collective performance across our key growth areas, including Sephora, home decor, gifting, and impulse, and also benefited from the opening of Babies “R” Us shops in 200 of our stores, these were unable to offset the declines in our core business.”

“We are not satisfied with our performance in 2024 and are taking aggressive action to reverse the sales declines. We must execute at a higher level and ensure we are putting the customer first in everything we do.”

“We are approaching our financial outlook for the year more conservatively given the third quarter underperformance and our expectation for a highly competitive holiday season.”

Investors can gain exposure to the stock via WBI Power Factor High Dividend ETF WBIY and Invesco S&P SmallCap Value with Momentum ETF XSVM.

Price Action: KSS shares are down 175% at $15.23 premarket at the last check Tuesday.

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