Home outperformed Kohl’s overall business in the third quarter when earnings beat a Wall Street estimate but revenues fell short.
The ongoing expansion of the home business is one of several initiatives, including the growth of the Sephora business, that Kohl’s is counting on to propel operations in 2024, Tom Kingsbury, Kohl’s chief executive officer, said in a conference call.
Net income was $59 million, or 53 cents per diluted share, versus $97 million, or 82 cents per diluted share, in the year-previous quarter, the company reported.
Kohl’s beat a Yahoo Finance-published analyst average estimate of 35 cents per diluted share but fell short of a $3.91 billion revenue estimate.
Comparable store sales decreased 5.5% in the quarter year over year, the company stated, with digital comps particularly soft. Net sales in the quarter were $3.84 billion versus $4.05 billion in the year-before period. Operating income was $157 million versus $200 million in the year-past quarter.
In the conference call, Tom Kingsbury, Kohl’s chief executive officer, said the third quarter results reflected strong gross margin and expense management but ran up against softer-than-expected demand, some challenges related to weather and macro-economic pressure on consumers.
On the digital side, e-commerce sales slid 16.5% due in part to a decision the company made to eliminate online-only promotions in favor of omnichannel pricing across the enterprise. Kingsbury insisted that omnichannel pricing is the right strategy for Kohl’s even if it will hit digital sales short term. Store comps slipped 1% in the quarter, when back-to-school performance was solid, with higher than expected sales, but warmer weather in September into October across some regions hurt demand for fall merchandise.
“While I don’t like blaming weather for performance, the fall transition period has historically proven to be when Kohl’s apparel-intensive business is most sensitive to weather fluctuations,” Kingsbury said.
Moves to expand home, beauty, gifting and impulse should help “de-weather” Kohl’s business, Kingsbury noted.
He added, “I am pleased with our positive year-to-date store performance driven by strong growth in Sephora and, more recently, our home and gifting initiatives. In addition, we have furthered our efforts to simplify our value strategies, manage expenses tightly and reduce inventory by 13% at the end of the third quarter.”
Kingsbury indicated that the initiatives Kohl’s has launched or invigorated this year will bear fruit in 2024 but will take some time to gather momentum. Still, he said Kohl’s expects Sephora to be a $2 billion business by 2025. Then, the company expanded its upfront gifting presentation for the holidays with 50% new products. As part of a wider initiative to update store presentation, Kohl’s is adding fixtures to expand its impulse purchase assortment.
Home decor and associated product expansion fills a void in Kohl’s assortment and represents a category the company’s customers have shopped elsewhere, Kingsbury said. To make the most of the home opportunity, he maintained that Kohl’s has invested in the category merchandising operation and has formed new vendor relationships. In the third quarter, he said, Kohl’s began to flow new merchandise into stores with key segments including barware, wall art, glassware, ceramic home decor, botanicals and lighting. The company will further expand the home assortment as shoppers begin to recognize Kohl’s as a destination for a wider range of household goods, he said, referencing that the home business had outperformed the company in the quarter.
In announcing third-quarter results, Kingsbury said, “Our strategies to reposition Kohl’s for improved sales and earnings performance remain in the early stages. The work we have done in 2023 will continue to build momentum and set us up to be successful in 2024.”
