Kohl’s lost more than $500 million in Q1 amid COVID-19 store closures

Company announces new partnerships with Lands' End, TOMS

Kohl’s headquarters
Kohl’s headquarters in Menomonee Falls.

Last updated on May 22nd, 2020 at 11:59 am

Kohl’s Corp. sales dropped significantly in the first quarter of fiscal 2020 due to the temporary store closures prompted by the coronavirus and the Menomonee Falls-based retailer lost more than $500 million.

Since May 4, Kohl’s has reopened 50% of its stores nationwide. During the company’s Q1 earnings conference call Tuesday morning, chief executive officer Michelle Gass said that as stores have been reopening, those locations are doing 50 to 60 percent of the productivity that the company would typically see during this time of year.

“There are customers in our stores and we’re happy about that and we’re encouraged by seeing the progressive improvement of the stores that have now been open two weeks… we’ve seen them ramp up in their second week,” she said.

Kohl’s reported a 43.5% decrease in net sales for the first three months of the fiscal year, compared to the same period in 2019. Total revenues for the quarter totaled $2.4 billion, down 40.6% from last year.

Profits swung from a reported net income of $62 million in 2019 to a net loss of $541 million in the first quarter of 2020. Diluted loss per share was $3.50, compared to diluted earnings per share of 38 cents last year.

“As expected, our business has been materially impacted by COVID-19,” said Gass.

She said Q1 was off to a strong start in February, with comparable sales trends consistent with previous guidance, but store traffic soon began to take a hit. On March 20, Kohl’s temporarily closed its 1,100 stores in 49 states. The company furloughed 85,000 employees, providing two weeks of pay and continuation of existing health benefits.

Kohl’s took additional steps to limit cash outflow including reducing inventory receipts and reducing marketing, technology and operations expenses.

With its entire store base closed, Kohl’s shifted focus to its online and e-commerce presence by boosting digital marketing efforts and updating site content.

Digital sales increased 24% for the quarter and increased 60% during the month of April. The retailer saw increased digital sales in all categories, with home as the main driver of that growth thanks to stay-at-home mandates, said Gass.

In early April, Kohl’s launched free curbside pick-up for online orders at more than 900 of its stores. Gass said 15% of digital orders were fulfilled by the service last month, exceeding that of store pick-up for online orders prior to the COVID-19 crisis. Kohl’s will continue offering Store Drive Up as stores reopen for shoppers.

“While we have a fast growing digital business, it is only replacing a small portion of sales lost from our entire store base being closed during the second half of the first quarter,” said Gass, calling stores the “lifeblood” of the company.

Also during Tuesday’s call, Gass announced several updates to Kohl’s strategic plan. The company later this year will introduce several new brands, including Los Angeles-based TOMS and Dodgeville-based Lands’ End

“Lands’ End is an iconic brand and a market leader in the classic-casual lifestyle,” said Gass. “Beginning this fall, we will offer the full Lands’ End assortment on Kohl’s.com as well as feature a shop-in-shop experience in 150 of our stores.”

In an effort to improve its women’s division, Kohl’s will part from eight under performing women’s private brands including Dana Buchman, Jennifer Lopez, Mudd, Candies, Rock & Republic, PopSugar, Elle and Juicy Couture. Gass said the move will create space for more “compelling and current” offerings while improving overall clarity with fewer choices.

Kohl’s active and beauty categories also remain key focuses. Last year, the company added several beauty brands and expanded its “elevated beauty experience” to 12 stores. It plans to add the experience to 50 additional stores this year, said Gass.

Despite the impact of COVID-19 on brick-and-mortar business, Kohl’s sees its store portfolio as one of the “core assets of its strategy going forward,” said Gass.

In addition to generating positive cash flow and their proximity to high-traffic shopping areas, the large-format size of Kohl’s stores provides an opportunity for ample social distancing, said Gass.

The company has implemented a number of new health and safety protocols at reopened stores including limited store hours, social distancing measures, increased cleaning and sanitization, as well as mandatory wellness and temperature checks and proper PPE for employees. A complete list of Kohl’s new safety measures is available here.

“As we look forward, we are planning business based on the assumption that sales will rebuild gradually during the remainder of the year while people get more comfortable living in this new normal,” said Gass. “Based on this, we are planning the business conservatively.”

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Maredithe has covered retail, restaurants, entertainment and tourism since 2018. Her duties as associate editor include copy editing, page proofing and managing work flow. Meyer earned a degree in journalism from Marquette University and still enjoys attending men’s basketball games to cheer on the Golden Eagles. Also in her free time, Meyer coaches high school field hockey and loves trying out new restaurants in Milwaukee.

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