Kohl’s earnings fell 63% in Q2 amid inflationary pressure

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

Last updated on August 19th, 2022 at 11:44 am

Menomonee Falls-based Kohl’s Corp. continues to feel the impact of rising inflation on consumer spending, with net sales dropping 8.5% in the second quarter of fiscal 2022.

The retailer on Thursday reported Q2 earnings of $143 million, down 63% from the same period last year; diluted earnings per share were down 55% at $1.11. Total revenue was down 8.1%.

For the first half of fiscal 2022, earnings fell 60% from $396 million in the first half of fiscal 2021, and net sales were down 7% from $7.88 billion in the same period last year.

Kohl’s executives pointed to the challenging and uncertain macroeconomic environment, high inflation and dampened consumer spending as the major contributors to its weak second quarter results and lagging sales in discretionary categories like apparel.

“We saw a benefit earlier in the quarter from spring seasonal selling, though as we progressed into May and June, it became increasingly clear that inflationary pressures were beginning to impact our customers’ spending, especially our middle income customers,” said chief executive officer Michelle Gass during the company’s quarterly earnings conference call.

Less foot traffic and smaller basket sizes drove store sales down 10% in the second  quarter, and as shoppers looked for ways to stretch their dollar, Kohl’s saw its value-oriented private-label brands, such as Jumping Bean and Sonoma, outperform national brands for the second consecutive quarter.

“It’s clear there’s been a significant shift with the consumer over the past few months, and we expect this to persist for the foreseeable future,” said Gass.

In light of a challenging economic backdrop, Kohl’s once again updated its outlook for the full year. The retailer now expects its net sales to decrease by 5% to 6% year-over-year, compared to a previous expectation of flat to 1%. Operating margin in Q2 was 6.5% and is now expected to be in the range of 4.2% to 4.5% for the full year, down from previously projected 7.0% to 7.2% range.

In an effort to offset the impact of softening demand, Kohl’s is taking steps to reduce inventory, which was up 48% at the end of Q2, and cut back on expenses.

“We’ve increased promotions, we are being aggressive in clearing excess inventory, we’re pulling back on receipts,” said Gass.

On Aug. 18, the company entered into an accelerated share repurchase agreement to repurchase approximately $500 million of the company’s common stock. On Aug. 9, Kohl’s board of directors declared a quarterly cash dividend on the company’s common stock of $0.50 per share. During the full fiscal year, the company expects to return approximately $900 million in capital to shareholders

Amid industry headwinds and shifting consumer behavior, the retailer continues to push forward with its current turnaround strategy, which includes growing its partnership with Sephora to a $2 billion line of business and expanding that initiative across the entire Kohl’s footprint. Since it launched last year, Sephora’s shop-in-shops have opened in nearly 600 Kohl’s locations, on track for a total of 850 stores by 2023.

The strategy also calls for 100 small-format Kohl’s stores to open over the next four to five years in markets considered too small to support the typical 80,000-square-foot full-size Kohl’s store. That includes downtown Milwaukee, where a Kohl’s store is slated to open next year in the former Boston Store space on West Wisconsin Avenue. That location will be the 15th Milwaukee-area Kohl’s store to include a Sephora. That’s out of a total 20 store locations in southeastern Wisconsin.

“Kohl’s has navigated difficult periods in the past and I am confident in our ability to successfully manage through the current uncertainty,” said Gass.

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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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