Kohl’s to close 18 stores

Profit falls 20 percent in important Q4

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Menomonee Falls-based department store operator Kohl’s Corp. announced today it will close 18 underperforming stores as it works to adapt to changing consumer shopping trends.

Kohl's headquarters
The Kohl’s Corp. headquarters in Menomonee Falls.

The company will announce by the end of March which of its 1,164 stores it will be closing across its 49-state footprint. The closures, expected to occur in June, will represent less than one percent of Kohl’s total sales, and are expected to result in about $55 million in savings annually.

At the same time, Kohl’s is piloting a new smaller format store, opening seven of them nationwide, and is continuing to test its discount store models. It is in the process of opening two more of its pilot Off-Aisle discount stores in Wauwatosa and Waukesha, and it will open 12 Fila outlet stores as its first foray into outlet shopping.

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Earlier this month, the company announced it was eliminating three of its top leadership roles to streamline operations. Together with the store closures, Kohl’s expects to incur charges of $150 to $170 million for organizational realignment.

“We see exciting growth potential in the new stores and new formats that we are opening this year and are heavily investing in the health of our overall stores portfolio to continue to serve our current and future customers,” said Kevin Mansell, chairman, president and chief executive officer of Kohl’s. “A vital component of our omnichannel approach is to clearly understand the evolving retail environment and ensure that we are well-positioned to leverage our resources on productive projects.”

While the decision to close stores is a difficult one, we evaluated all of the elements that contribute to making a store successful, and we were thoughtful and strategic in our approach. We are committed to leveraging our resources on our more productive assets.”

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Importantly, we also wanted to provide the best options for our associates and are proud that every affected store associate will be offered a position at a nearby Kohl’s location, or if they prefer, a competitive severance package.”

Mansell told analysts this morning he doesn’t know if Kohl’s will be closing additional stores, but will make another assessment after the 2016 holiday season. The closure decisions were made looking at total store sales and momentum of the stores’ sales, as well as market overlap.

“I think that we’re going to learn a lot. I think we’ll watch what happens with this process through the fall and the holiday season and we’ll make another assessment as we come out of this year and make a better determination of what the right portfolio really looks like,” Mansell said.

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The closures were announced as the company reported disappointing fourth quarter results.

Net income was $296 million, or $1.58 per share, down 20 percent from $369 million, or $1.83 per share, in the fourth quarter of 2014.

Kohl's store
A Kohl’s store.

Revenue totaled $6.4 billion, up from $6.3 billion in the same period a year ago. But comparable store sales, an important measure of retail performance, were up just 0.4 percent, compared with an increase of 3.7 percent in the fourth quarter of 2014.

The company earlier this month reported slightly higher holiday sales ahead of its official earnings report, driven by online shopping.

But in today’s earnings call, Kohl’s leaders pointed out that while the company saw a 30 percent increase in online orders during the fourth quarter, shipping costs were up as a result.

And despite the better holiday performance, fewer shoppers were out buying coats in early November, Mansell said.

“We believe that the strategic framework of the Greatness Agenda is working as evidenced by our achievement of five consecutive quarters of positive comparable sales increases. I am particularly encouraged by the 4 percent increase we saw between Thanksgiving and Christmas. At the most competitive time in retail, customers were choosing Kohl’s ,” he said. “This strength, however, was substantially offset by softness in early November and in January when demand for cold-weather goods was especially low, resulting in a quarterly comparable sales increase of 0.4 percent, which was below our expectations.”

For the full year, Kohl’s reported $673 million in net income, or $3.46 per share, down 22 percent from $867 million, or $4.24 per share, in 2014.  Full-year revenue was $19.2 billion, up from $19 billion in the prior year. Comparable store sales were up 0.7 percent for the year, compared with a 0.3 percent reduction in 2014.

The disappointing results could have major implications for the retailer. The Wall Street Journal last month reported Kohl’s executives may be planning to take the company private or break up the company due to concerns its low share price could make Kohl’s a target for activist investors.

Mansell addressed those rumors briefly this morning.

“I don’t think there’s a ‘Hey it would be better for us to be public. It would be better for us to be private.’ It’s really just a focus on shareholder value as we would make the same determination about share buyback or dividend yield or capital expenditures.”

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