As it initiates a CEO transition, Kohl’s admitted a deemphasis on core, opening-price point, own-brand apparel in third quarter led to softer traffic that ultimately dampened sales across the store, including the home assortment.
Home is among the categories Kohl’s wants to improve to balance volatility in apparel, including weather-related and seasonal clothing, for which a warm early fall nationwide contributed to the company’s soft third-quarter sales. Kohl’s noted it will put more promotional support behind kitchen electrics during its fourth quarter and boost the presentation of floor care as it adds gift-friendly private-label bedding. Already, new and more abundant private-label apparel has helped Kohl’s in a key product category for the department store retailer. The company stated that other businesses it is counting on for growth, including home décor, impulse, gifting, and Sephora, did well in the third quarter and should benefit from more enhanced marketing in the fourth quarter.
As it released third-quarter results, the company announced CEO Tom Kingsbury’s plans to step down from his executive role effective January 15, 2025. Ashley Buchanan, who has been CEO of The Michaels Cos. will become Kohl’s CEO and a board member. Earlier in his career, Buchanan (pictured above right) held senior executive roles at Walmart, the namesake operation, and Sam’s Club. Kingsbury (pictured above left) will assume an advisory role to the new CEO and retain his position on Kohl’s board through his retirement in May 2025.
For the third quarter, Kohl’s net income was $22 million, or 20 cents per diluted share, versus $59 million, or 53 cents per diluted share, in the year-before period, the company stated.
A Zacks Investment Research analyst consensus estimate called for earnings of 27 cents per diluted share and revenues of $3.84 billion.
Kohl’s comparable sales decreased 9.3%, the company reported.
Net sales were $3.51 billion, while total revenue was $3.71 billion versus $3.84 billion and $4.05 billion, respectively, in the year-earlier quarter. Operating income was $98 million versus $157 million in the year-prior period.
In a conference call, Kingsbury said the executive transition was timely, given he had agreed to come on board Kohl’s for a two-year period ending in May of next year. He said the company planned no major changes in strategic direction upon Buchanan’s arrival.
“Ashley is very much aligned with the strategy we have in place right now,” Kingsbury said. “He’s spent a lot of time with our board of directors. Time with me. Obviously, as always, there will be some changes and modifications and he’ll want to put his fingerprints on the strategies, which is what you would expect.”
Kingsbury indicated his role at Kohl’s always had been considered transitional. He arrived as certain major investors were pressuring the company to make changes to strategy and the leadership behind them. Under these circumstances, CEO Michelle Gass left the company to take up the leadership role of Levi Strauss. After a successful run at Burlington Stores and a previous stint in Kohl’s executive ranks, Kingsbury took Kohl’s reins to initiate the current company strategy, the advancement of which Buchanan will lead.
“It’s not an exact science in terms of hiring somebody,” Kingsbury said. “We were fortunate to have Ashley (Buchanan) come and decide to join us, and this is the way the timing worked out. We felt that it was best to do it now.”
With Kingsbury due to leave the company in spring, Kohl’s Chairman Michael Bender, said: “We engaged in what we felt was a very robust succession planning process. Really strong CEOs are hard to find, so when we were able to attract Ashely (Buchanan) to the business and identified him as the ideal candidate with an availability date of mid-January, that made sense to us to continue to move the process. We’re pleased that he can start in the January timeframe that will allow for an orderly transition with Tom staying on as an advisor and board member until May.”
In announcing the financial results, Kingsbury 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. Importantly, we delivered gross margin expansion and managed expenses tightly in the quarter. 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.”
Meanwhile, the Michaels board announced that it is already looking for a new CEO to succeed Buchanan, with the help of the executive search firm Spencer Stuart.
