Kohl’s Corp. on Tuesday reported a second quarter miss on sales and a decline in comparable sales, though sales trends improved in the last six weeks of the quarter and the company re-affirmed its full year guidance. Of particular note, however, Amazon and Planet Fitness seem to be driving traffic to the stores, and more partnerships are on the way.
In a Nutshell: Michelle Gass, chief executive officer, said, “Comparable sales were better than the first quarter and improved during the period, turning positive during the last six weeks of the second quarter with 1 percent growth. This positive trend has continued into August, driven by a successful start to the back-to-school season.”
In the conference call to Wall Street analysts, Gass said “apparel sales comped positively for the combined June and July period.”
Upcoming partnerships include one with Levi’s and country music star Brett Young for an apparel collection called Caliville, as well as the launch in September of Nine West for footwear and women’s apparel. For holiday, the retailer is partnering with Mary-Kate and Ashley Olsen, as well as Jason Wu. And in November, Kohl’s will become the exclusive retailer of Elizabeth and James-branded apparel, handbags and accessories.
As for tariffs on apparel and footwear, Gass said, “We will approach our path forward thoughtfully with a focus on doing what’s right not only for our business, but also what’s right for our customers over the long term.”
The CEO also told analysts: “We know that our customers are driven by our value proposition, so we will ensure that our customers continue to receive the value they expect from Kohl’s. We’ve been executing against a sourcing diversification strategy for quite some time, and this year, our team has been working closely with our vendors to ensure that we are prepared for any potential tariff escalation.”
According to Jefferies analyst Randal Konik, the second quarter showed comp improvement from the first quarter, as well as solid expense control. And with full year guidance affirmed, Konik concluded that the “business is improving as the weather becomes more ‘normal.'”
The analyst said the Amazon and Planet Fitness partnerships are “bearing fruit,” noting that the national rollout of the Amazon partnership is having a positive impact on traffic. “We expect traffic to continue to accelerate from the partnership as awareness levels rise,” Konik concluded.
Christina Boni, vice president and senior credit officer at credit ratings firm Moody’s Investors Service, pointed out that Kohl’s, like many of its peers, experienced margin compression during the quarter despite controlling expenses. Adding to that, she said, “Kohl’s remains very focused on driving innovation and newness in its stores to drive sales performance in the second half. Kohl’s will continue to prioritize driving value to the customer to the extent that further tariffs are implemented.”
Net Sales: For the quarter ended Aug. 3, total revenues fell 3.1 percent to $4.43 billion from $4.57 billion. Revenues included a corresponding 3.3 percent slip in net sales to $4.17 billion from $4.31 billion. Comparable sales decreased 2.9 percent for the quarter.
Gross margins slipped to 38.8 percent from 39.5 percent in the year-ago period.
Earnings: Net income for the period fell 17.5 percent to $241 million, or $1.51 a diluted share, from $292 million, or $1.76, in the year-ago quarter. On an adjusted basis, diluted EPS was $1.55 for the quarter.
Wall Street was expecting adjusted diluted EPS of $1.53 on sales of $4.2 billion.
The company affirmed its prior adjusted annual diluted EPS guidance of $5.15 to $5.45.
CEO’s Take: Gass said, “We are confident that our upcoming brand launches, program expansions, and increased traffic from the Amazon returns program will incrementally contribute to our performance during the balance of the year and beyond.”
The overarching goal of the partnership with Amazon, Gass told analysts, is to “convert the traffic that comes into our stores into Kohl’s shoppers over time.” The nationwide rollout was completed on July 8 and, although just six weeks old, the company is “highly encouraged with the initial results.” More specifically, Gass said, “Today, we are seeing conversion consistent with our pilot stores and are particularly encouraged with how our customers are engaging with our proprietary brands.”