Kohl’s Corp. beat second-quarter earnings estimates, noting it experienced strength in categories it has identified for growth, including Sephora beauty, home decor, gifting and impulse, while weaker consumer spending in its core segments pressured overall sales.
Second quarter net income was $66 million, or 59 cents per diluted share, versus $58 million, or 52 cents per diluted share, in the year-before period, the company indicated.
Kohl’s beat a Yahoo Finance-published analyst consensus estimate for 45 cents per diluted share and $3.58 billion in revenue, although it fell short of a higher Zacks Investment Research revenue estimate of $3.8 billion.
Comparable sales slipped 5.1% in the quarter, Kohl’s reported. Net sales were $3.53 billion and total revenue was $3.73 billion versus $3.68 billion and $3.9 billion, respectively, in the year-prior quarter. Operating income was $166 million versus $163 million in the period a year earlier.
Tom Kingsbury, Kohl’s CEO, said in a conference call Kohl’s would focus marketing on its key growth areas going forward as well as value “with an emphasis on lower-price messaging.”
He said recent investments in marketing helped build home decor sales in the second quarter, as did expansion in the assortment. Sales in seasonal and everyday decor advanced by more than 35% in the quarter year over year. Within the home business, storage, glassware, wall art and pet did especially well, Kingsbury said.
Gifting sales increased more than 30% for Kohl’ in the quarter, with consumers responding positively to efforts during major holidays including Mother’s Day, Father’s Day and Fourth of July. Kohl’s plans to have a more robust gifting presentation for the upcoming holiday season, Kingsbury said.
Core home experienced softness, but Kingsbury noted the company expects trends to stabilize as it offers increased innovation, new brands and stronger value marketing in the fall.
Kingsbury said digital sales did better than physical store sales in the quarter. Kohl’s is working to enhance the omnichannel experience, he added, and it is augmenting social media efforts to connect with younger consumers.
In announcing the financial results, Kingsbury said, “We have taken significant action to reposition Kohl’s for future growth. However, our efforts have yet to fully yield the intended outcome due in part to a continued challenging consumer environment and softness in our core business. During the second quarter, our customers exhibited more discretion in their spending, which pressured our sales even as customers transacted more frequently. This overshadowed strong performance in our key growth areas, including Sephora, home decor, gifting, and impulse. In spite of this, we continued to execute well operationally, enabling us to deliver a 13% increase in earnings driven by gross margin expansion and strong.
Looking ahead, Kingsbury said: “We are focused on ensuring that the substantial work that we’ve done across product, value, and experience is fully recognized by both new and existing customers. We will also capitalize on new opportunities, such as our partnership with Babies “R” Us and expect to continue to benefit from our key growth areas. Our conviction in our strategy remains strong and our operating discipline, solid cash flow generation, and healthy balance sheet will continue to support us as we work to return Kohl’s to growth.”
