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Home Goods and National Brands Help Kohl’s in Q2, but Declining Store Traffic an Issue

In its second quarter earnings report released late last week, Kohl’s posted a total sales decrease of 1.1% to $4.2 billion, and a 1.3% decline in comparable store sales, consistent with expectations.

The company reported that average unit retail price increased by 3 percent, but transactions per store were down by 3.2% as brick-and-mortar store traffic declined.

Gross margin fell by 6 basis points to 39 percent, due primarily to a higher mix of lower margin product categories like children’s apparel and home appliances, both of which are relatively price-sensitive. Net income was virtually unchanged at $232 million, but diluted earnings per share rose from $1.05 to $1.14.

Kohl’s chairman and CEO Kevin Mansell said in a statement, “We are pleased with the improvement we saw in sales as the quarter progressed. The improvement was the most dramatic in the month of July where we achieved a positive comp. As they consistently do, our teams did a great job of managing expenses throughout the quarter. We enter the back-to-school season with fresh, new inventory and encouraging momentum.”

On the company’s quarter earnings conference call, Mansell was upbeat about the outlook for fall and for many of the long-term strategic initiatives currently underway that have yielded positive early results. Kohl’s is working on a shift toward more national brands in the merchandise mix, new e-commerce services like order-online-pick-up-in-store, and a new customer loyalty program currently being tested in Texas and elsewhere that looks promising. Finding ways to maintain or even increase store traffic levels continues to be a main focus.

Kohl’s reported that along with home (the strongest category in the quarter), children’s apparel and footwear enjoyed above-average sales performance, while men’s and accessories were average, and women’s was below average. Juniors and the new beauty brands were highlighted as particularly strong, however.

The retailer is shifting a larger portion of its merchandise to national brands, which in the second quarter earned an average 46 percent gross margin, 90 basis points higher than year-ago levels. In mid-September it will launch the Izod brand and the Juicy Couture collection, which Mansell referred to as a “proven casual luxury brand” that will cater to growing demand for “athleisure” products. In Spring 2015, the Puma brand will debut as well.

Kohl’s operates 1,160 stores, five more than one year ago, and plans to open four new stores later this year.