Kohl’s Q1 Revenue Misses Target, But CEO Vows Strategy Progress: Patience Needed for Turnaround

Fashnopsis:

• Kohl’s Q1 falls short but maintains turnaround strategy, seeking patience from investors.
• Expense control and inventory management show improvement, but clearance activity hurts sales.
• Partnerships like Sephora and Babies R Us seen as strengths, but analyst criticizes “lackluster” clearance.
• Kohl’s lags behind competitors in store upgrades, with customer base shrinking.
• Focus on maintaining stores and improving e-commerce, aiming for equal sales across channels.

Kohl’s Q1 Falls Short, But CEO Assures Strategy Remains on Track

Kohl’s chief executive officer, Tom Kingsbury, acknowledged that the company’s Q1 results fell short of expectations. However, he assured analysts that their turnaround strategy remains on track and requested continued support.

Kingsbury outlined the core elements of their strategy: enhancing the customer experience, streamlining value propositions, managing expenses and inventory efficiently, and strengthening their financial position. He emphasized that “transformations of this scale require time.”

Expense Control and Inventory Management Show Improvement

The CEO highlighted positive developments in expense control and inventory management. Selling, general, and administrative expenses saw a year-over-year decrease of 0.8%, reaching $1.2 billion. Additionally, inventory levels were down 13% compared to the previous quarter, according to a company press release.

Clearance Activity Hits Sales, But Future Looks Brighter

Executives explained that while clearance activity helped reduce excess inventory, it also impacted sales negatively, dragging down comparable sales by 600 basis points. They reassured that this concentrated effort is largely complete, leading to less reliance on clearance pricing moving forward. Additionally, successful merchandising initiatives in home goods, dresses, and gifting categories resulted in higher sales at full price.

Partnerships Seen as Strength, But Analyst Raises Concerns

Partnerships, particularly the in-store Sephora shops and the recent collaboration with Babies R Us, were identified as further strengths. However, industry analyst Neil Saunders, Managing Director at GlobalData, expressed concerns about the “lackluster” clearance sale. He believes this reflects issues with inventory quality and customer migration towards competitors for better deals.

Kohl’s Lags in Store Upgrades, Customer Exodus Highlighted

Saunders also pointed out that Kohl’s lags behind rivals like Macy’s and J.C. Penney in terms of store upgrades. GlobalData research indicates that Kohl’s has lost roughly 1.3 million customers in the past five years.

Focus on Maintaining Stores, E-commerce Improvements Planned

While Kingsbury did acknowledge some planned store improvements, such as relocating junior apparel near Sephora to encourage cross-shopping and expanding gifting areas, the overall focus is on maintaining existing stores rather than major renovations. “We’re not going to have any major remodels or any resets in stores right now,” he stated.

Kingsbury previously emphasized the importance of their physical stores, and he reiterated their commitment to improving the e-commerce platform, specifically search functionality and product recommendations. He revealed that while brick-and-mortar sales currently outperform digital sales, their goal is to achieve parity between the two channels.

Analyst Calls for More Drastic In-Store Changes

However, the GlobalData report suggests a need for more drastic in-store improvements. “Kohl’s leadership has a solid understanding of merchandising and retail fundamentals,” said Saunders. “But these plans need to be executed with greater urgency. Without tangible changes on the shopping floor, Kohl’s will continue to struggle and lose market share to more agile competitors.”

Image Source: Kohl’s