Chief merchant Doug Howe and chief marketing officer Greg Revelle have resigned from Kohl’s, the department store retailer announced Wednesday before it reported a 5.2 percent first-quarter sales decline. CEO Michelle Gass said the Menomonee Falls, Wisc.-based chain sees the departures as an “opportunity to identify new talent to enhance our capabilities and really help us drive the next phase of our growth with some fresh thinking.”
In a Nutshell: Like Amazon, Walmart and Target, Kohl’s reported higher costs that ate away at quarterly profits, prompting the retailer to lower its earnings guidance.
Much of Kohl’s quarter was defined by the Macellum-instigated proxy battle that ended last week with shareholders re-electing the retailer’s entire 13-member board.
The company continues exploring its options, including the sale process it formally launched in January that has fielded several preliminary offers. Kohl’s expects to have “fully-financed final bids” in hand in the coming weeks.
CEO Michelle Gass told Wall Street investors that the retailer continues to engage with multiple parties, which include Sycamore Partners, Hudson’s Bay Co., Franchise Group, Acacia Research, and a consortium led by Leonard Green & Partners that includes Authentic Brands Group. Even mall operators Simon Property Group and Brookfield Asset Management are said to be contemplating a joint bid.
“We are financially healthy, and we have the right strategies in place,” Gass said.
The retailer’s Sephora shop-in-shop rollout, store refreshes, rising freight and wage expenses drove the lower earnings, in addition to the Macellum clash and ongoing sale talks, Gass said.
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The home category declined 17 percent, representing 15 percent of total sales against difficult year-ago comparisons. Gass “expect[s] the category demand to remain weak,” with Kohl’s focusing on incremental areas such as kids’ bedroom furnishings.
“[U]nseasonably cooler weather, especially in the northern market” slowed spending on apparel and footwear, especially the children’s segment, which declined 12 percent and saw an 800-basis-point difference in sales performance between the northern and southern markets, Gass said.
“We’re expecting that our children’s business will improve for the remainder of the year,” Gass said, adding that Kohl’s is also rebalancing the assortments to include more fashion.
Men’s saw a strong positive comp in the quarter, while sales in the core women’s business, core sportswear, casual and career wear were “down just 1 percent,” Gass said.
“We went big into dresses across a range of styles, gave it a lot more merchandising in the store and it’s well over double digits in terms of its growth and we’re just going to build from there,” she said, adding that outerwear and denim are also performing well.
Kohl’s has “seen trends notably improve in May,” with warmer weather driving demand for spring fashion and outdoor apparel continuing to drive sales, Gass said.
Gass told investors that the company expects sequential improvement in the second quarter based on quarter-to-date results, to be followed by positive growth in the second half as key initiatives take hold.
Kohl’s sees elevated freight costs persisting this year, though its sourcing diversification efforts have helped it deal with inflation. The company is building in more lead time and bringing in product to avoid delays. It decided to pack and hold some of the merchandise that came in late last year, chief financial officer Jill Timm told investors.
“We were really light [on inventory] as we exited holidays and that’s why we used the pack and hold,” she said, adding, “there was a lot of goods that came late that weren’t salable, but we didn’t want to have to just mark them down. They were holiday sleep or fleece that really still have a life.” Kohl’s “will put that back out for sale,” she said of the “still good inventory” that “still resonates with the customer in the fall side.”
In the wake of the executive departures, Ron Murray, executive vice president and general merchandising manager, will take on the interim role of chief merchant and Christy Raymond, marketing executive vice president of customer insights, analytics and engagement, will serve as interim chief marketing officer.
Net Sales: Total revenue for the three months ended April 30 fell 4.4 percent to $3.72 billion from $3.89 billion, which included a 5.2 percent decline in net sales to $3.47 billion from $3.662 billion.
Earnings: Net income was flat at $14 million, or 11 cents a diluted share, versus 9 cents in the year-ago period.
Wall Street expected diluted earnings per share (EPS) of 70 cents on revenue of $3.68 billion.
For full year 2022, the company now expects EPS in the range of $6.45 to $6.85, excluding nonrecurring charges, on net sales at flat to up 1 percent. Prior guidance in March called for EPS between $7.00 and $7.50, excluding nonrecurring charges, on a net sales gain of 2 percent to 3 percent.
CEO’s Take: “We’ll adapt our plans going forward as we navigate more volatile and challenging conditions. We’re focused on driving value during the current environment, leaning into our value oriented private brand portfolio which outperforms this quarter, and further leveraging our pricing and promotion optimization strategy,” Gass said.