Kohl's Swung To A Quarterly Profit As It Showed A Preview Of Its Turnaround Strategy To Combat Slumping Sales

With its fourth quarter report, Kohl’s KSS came short on revenue estimates and issued a weak guidance. On a brighter note, Kohl’s swung from a net loss in last year’s comparable quarter to a net income and announced its plans to add Babies R Us baby gear to approximately 200 of its stores in the fall to combat off-price and discount retailers like TJX Companies TJX and Target TGT.

Holiday Quarter Highlights

For the quarter ended on February 3rd, Kohl’s reported net sales contracted 1.1% YoY to $5.71 billion. Kohl’s was helped by an extra week in this year’s holiday quarter, like its retail peers. But Kohl’s turned from a net loss of 273 million, or $2.49 per share it reported for last year’s comparable quarter, to reporting a net income $186 million, or $1.67 per share, surpassing FactSet’s consensus of $1.28 a share. Also on a brighter note, gross margin expanded from 23% reported for last's comparable quarter to 32.4%.

Kohl’s reported its full year sales also declined slightly to $16.586 billion, reflecting its ongoing battle with slumping sales.

Conservative Guidance In Response To An Uncertain Macroeconomic Outlook

For the year ahead, Kohl’s is expecting net sales growth to range from a 1% decrease to 1% increase, with comparable sales ranging from flat to going up 2%. As for earnings per share, Kohl’s guided in the range between $2.10 and $2.70, excluding any nonrecurring charges. All in all, Kohl’s joined its department store retailer peers in warning 2024 will be a challenging year that is expected to further weaken sales growth. 

The holiday quarter provided a preview of the turnaround plan.

CEO Tom Kingsbury noted that the Q4 comp result was the company’s best since 2010 as Kohl’s is taking action to boost foot traffic and lure in younger shoppers in response to budget-conscious shoppers shifting towards off-price retailers like the TJX Companies and Ross Stores Inc ROST. TJX surpassed analyst estimates with its holiday quarter performance. Increased customer transactions during the holiday season fueled comparable store sales at TJX to rise 5%. But even TJX guided for a weaker than expected year ahead.

The strategy to boost purchases in several ways.

With Babies R Us exclusive licensing agreement, Kohl’s is gaining a potential growth driver. During the reported holiday quarter, Kohl’s showed how it intends to snap out of its sales slump by adding pet merchandise, home decor, as well as impulse and gifting items. But while navigating a year of transition and net sales for the year contracting slightly, gross margin and net income improved as a result of strategic initiatives. Kohl’s is positioned to perform better this year, but it still has a long way to go when it comes to achieving stellar growth.

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