Kohl’s Corp. managed to lift its bottom line in the second quarter despite challenging sales trends across most categories.
The Menomonee Falls, Wisc.-based retailer on Wednesday reported that for the second quarter ended Aug. 3 net income rose to $66 million, or $0.59 per diluted share, from $58 million, or $0.52 per diluted share in the year-ago period.
Net sales decreased 4.2 percent and comparable sales fell 5.1 percent. Gross margin increased 59 basis points. Inventory declined 9 percent.
Based on the weak second quarter selling trends, Kohl’s lowered its sales outlook for the year to a decline of 4 to 6 percent while comparable sales are seen falling 3 to 5 percent. However, the company lifted its outlook on profits, with diluted earnings per share now projected in the range of $1.75 to $2.25.
That compares to guidance earlier in the year of a net sales decrease of 2 to 4 percent, and a comparable sales decline of 1 to 3 percent, and diluted earnings per share from $1.25 to $1.85.
“We have taken significant action to reposition Kohl’s for future growth. However, our efforts have yet to fully yield the intended outcome due in part to a continued challenging consumer environment and softness in our core business,” Tom Kingsbury, Kohl’s chief executive officer, said in a statement. Core categories include women’s and men’s sportswear and activewear.
“During the second quarter, our customers exhibited more discretion in their spending, which pressured our sales even as customers transacted more frequently,” Kingsbury added. “This overshadowed strong performance in our key growth areas, including Sephora, home decor, gifting, and impulse. In spite of this, we continued to execute well operationally, enabling us to deliver a 13 percent increase in earnings driven by gross margin expansion and strong inventory and expense management.
“Looking ahead, we are focused on ensuring that the substantial work that we’ve done across product, value, and experience is fully recognized by both new and existing customers,” Kingsbury added. “We will also capitalize on new opportunities such as our partnership with Babies ‘R’ Us and expect to continue to benefit from our key growth areas. Our conviction in our strategy remains strong and our operating discipline, solid cash flow generation, and healthy balance sheet will continue to support us as we work to return Kohl’s to growth.”
The retailer has been aggressive remaking its mix as it strives to win over much-needed younger clients. Most significantly, Kohl’s rollout of Sephora shops inside its stores is in advanced stages; a rollout of Babies “R” Us is just underway; dress shops in 700 of its locations are up and running, and better brands are being sought to augment an over-reliance on proprietary labels. Last year, Kohl’s revamped its home assortment with pumped-up presentations of wall art, botanicals, storage, frames, glass, ceramics, gifting and impulse items, as well as introducing pet supply and lighting categories to the selling floor.
With all those assortment changes and more to come, Kohl’s is seeking $2 billion in additional sales volume over several years, although the re-merchandising hasn’t yet reversed declining sales trends as Americans hold back on spending.
Tom Kingsbury
Courtesy
