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Bon-Ton Exit, Apparel Performance Boosts Kohl’s

Kohl’s heads into the holidays with positive momentum as the company gains traction from several key initiatives.

In a nutshell: Clothing helped boost Kohl’s third quarter, ended Nov. 3.

Kohl’s reported strong apparel sales across categories during the quarter, led by its men’s business—with an “incredibly strong” performance in active, according to CEO Michelle Gass. Children’s was “outstanding” during the quarter on the company’s Jumping Beans label as well as the Carter’s brand.

The chief executive credited the company’s speed initiative for the continued positive trend in women’s. She also noted the retailer’s move to reduce breadth and increase depth helped keep focus on under-penetrated categories. Proprietary brands like Sonoma, Apartment 9 and LC Lauren Conrad were noted as standouts overall.

In addition to company-wide initiatives that are driving sales, Kohl’s also benefited from a boost as rivals have gone dark. CFO Bruce Besanko said Kohl’s performance was “amplified” by the Bon-Ton exit, particularly for one third of its fleet, where the two chains overlapped.

“We expect the Bon-Ton closures to be especially opportunistic given the strong overlap of their store and customer base with ours in markets where we tend to outperform,” he said.

To keep redirecting that foot traffic in Kohl’s direction, the company is actively marketing to former Bon-Ton customers.

The retail chain adjusted its full-year guidance to $5.16 to $5.36. Though that’s an increase over the $4.96 to $5.36 the company previously set, it wasn’t enough for investors, who sent stock prices spiraling on the announcement.

Sales: Kohl’s reported net sales for the third quarter were up by 1.3 percent to $4.37 billion over the $4.31 billion it brought in the same period of 2017. The retailer reported comp sales were up 2.5 percent during the quarter, marking its fifth consecutive quarter of growth.

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Earnings: Kohl’s net income reached $161 million, or 98 cents per diluted share, for the quarter, compared to $117 million, or 70 cents per diluted share, during the prior-year period.

CEO’s Take: “As you know, we’ve had an intense focus on improving the performance of our proprietary brands through our speed-to-market initiative. We’ve reduced our end-to-end timelines by 40 percent enabling us to make decisions closer to the season, test key programs before a company-wide rollout and respond to sales trends in a timely way. In the third quarter, we successfully chased millions of units of our strongest performing merchandise. We remain confident that the core capability we are building in speed, along with our focus and driving brand and value clarity, will provide long-term benefits to this important part of our business,” Gass said.