Although it fell short of expectations in the first quarter, Kohl’s pointed to gains in building the business through such initiatives as expanding its Sephora platform, adding Babies “R” Us shops and improving its home business.
Kohl’s posted a net loss of $27 million, or 24 cents per diluted share, versus net income of $14 million, or 13 cents per diluted share, in the year-prior quarter, the company reported.
A Yahoo Finance-published analyst consensus estimate called for earnings per diluted share of four cents and revenues of $3.33 billion.
Comparable sales slipped 4.4% in the quarter year over year. Net sales were $3.18 billion versus $3.36 billion in the year-before period. Operating income was $43 million versus $98 million in the year-previous quarter.
Tom Kingsbury, Kohl’s CEO, said in a conference call that soft sales in spring merchandise during an especially chilly March and April across much of the United States hit the company’s financial results, as did clearance-influenced year-over-year comparisons that dragged on first-quarter comps.
Kingsbury noted Sephora sales growth continues, adding Kohl’s will open an additional 140 shops this year under the banner, with most debuting in the second quarter. By year’s end, Sephora shops are planned to operate in 1,050 Kohl’s stores. The Sephora expansion is important, Kingsbury said, as the beauty operation draws new, younger and more diverse consumers to Kohl’s stores. Sephora customers shop at Kohl’s more frequently than the company average.
Kingsbury added Kohl’s continues to build a presence in under-penetrated categories such as home and gifting, and it is looking forward to the upcoming Babies “R” Us launch in its stores.
“We outlined these collectively as a $2 billion plus sales opportunity for us in the company years,” he said. “We continue to have confidence in our ability to achieve this target.”
The home category underperformed the company average in Q1, but Kohl’s saw incremental gains in two segments it operates as part of the home business, decor and pet. Legacy home stumbled in the first quarter with softness in kitchen electrics, floor care and bedding, according to the retailer. In response, Kohl’s reported it is focusing on newness in kitchen electrics and introducing new brands. At the same time, the company said it is placing greater emphasis on value in floor care and bedding.
In announcing the financial results, Kingsbury said, “Our first-quarter results did not meet our expectations and are not reflective of the direction we are heading with our strategic initiatives. Regular price sales increased year-over-year, with early success in underpenetrated categories, positive trends in our women’s business and continued strong growth in Sephora. However, lower clearance sales versus last year represented a more than 600 basis point drag on comparable sales. Importantly, we were able to deliver gross margin expansion, manage inventory down 13% and tightly control expenses in the quarter.”
Kohl’s management, Kingsbury added, remains confident in its strategy and believes “that our key growth initiatives, including Sephora, home decor, gifting, impulse and our upcoming partnership with Babies “R” Us, will contribute more meaningfully going forward. That said, we recognize we have more work to do in areas of our business. We are approaching our financial outlook for the year more conservatively given the first quarter underperformance and the ongoing uncertainty in the consumer environment.”
