Kohl’s cuts annual forecast, as it gets stung with inflation

NEW YORK — Kohl’s Corp. cut its annual earnings and sales forecast, as the department store chain joins a string of retailers stung with soaring inflation.

The reduction, announced Thursday, came as it reported fiscal first-quarter results that came below analysts’ expectations. Sales at stores opened at least year, a key measure, dropped 5.2% as shoppers scrutinized their purchases.

Like many department stores, Kohl’s had struggled before the pandemic, but the health crisis wielded a big blow to sales. The company’s business was rebounding as customers were going out to social events and buying dressier clothes. But like other stores, it’s now grappling with supply chain issues and surging inflation that are causing pain to its business. Moreover, shoppers, facing with higher costs on everything from gasoline to milk, are rethinking their purchases.

Kohl’s CEO Michelle Gass told The Associated Press in a phone interview that she continues to anticipate wage inflation, and the company is looking at ways to do more automation to offset the costs related to higher wages for its workers. For instance, Kohl’s is now offering the opportunity for customers to pick up online orders at the store without having contact with an employee.

It’s been a brutal earnings season for many retailers so far. Target reported Wednesday that its profit tumbled 52% compared with the same period last year in an environment of rising costs for things like fuel, and also a lightening quick return by consumers to more normalized spending. On Tuesday, Walmart’s shares tumbled about 17% for similar reasons after it posted quarterly results.

“The year has started out below our expectations,” said Gass in a statement. She noted that following a strong start to the quarter with sales at stores up by low single digits, sales considerably weakened in April as it encountered surging inflation and lapped against last year’s government stimulus plan.

Gass told analysts on a conference call Thursday that the sales drop was driven by declines in home and children’s clothing. The store’s home business had been a winner in the early days of the pandemic as shoppers stayed home, but sales are slowing down as they go out socially. She said Kohl’s is pivoting to outdoor furniture, expanded decor, children’s beds and furnishings in the pet category. Children’s clothing sales were dragged down by the unseasonably warm weather.

But Gass said that high inflation is making shoppers rethink their purchases, noting that Kohl’s is keeping its customers, but the average total purchase price is dropping.

“They’re coming into the store, and they’re being a bit more mindful of the brands they’re buying and what’s all going in their basket,” she said.

Gass is also seeing a split among consumer preferences — some are trading up to brands like Calvin Klein and Tommy Hilfiger, while others are gravitating more toward private-label brands.

As a result, Kohl’s is going deeper in price on items like children’s clothes where shoppers are more sensitive to price while raising prices on dressy apparel whose demand is less elastic to price.

Still, the company said that it remains committed to its long-term strategy and said that its Sephora stores at Kohl’s delivered sales gains across the 200 location for the quarter. Gass expects business will improve in the second half as it benefits from the rollout of 400 additional Sephora stores, improved loyalty rewards and further investment in its stores. In fact, Gass said that spending has been up at Sephora shops.

Gass also said that the company is reviewing multiple offers from interested parties looking to buy the business.

The company’s board is working with Goldman Sachs to explore strategic alternatives, which to date has included engaging with 25 parties. The board has requested fully-financed final bids to be submitted in the coming weeks, Kohl’s said.

The Menomonee Falls, Wisconsin-based company said that it earned $14 million, or 11 cents per share.

The results missed Wall Street expectations. The average estimate of six analysts surveyed by Zacks Investment Research was for earnings of 75 cents per share.

The department store operator posted revenue of $3.72 billion in the period, which also did not meet Street forecasts. Three analysts surveyed by Zacks expected $3.85 billion. Sales fell from $3.88 billion in the year-ago period.

Kohl’s expects full-year earnings in the range of $6.45 to $6.85 per share, down from the previous $7 per share to $7.50 per share. Analysts were expecting $7.09 per share. Sales for the year are now expected to be at most up 1% as compared to the prior year. Previously, the company said sales for the year would be up 2% to 3%.

Shares rose nearly 4% or $1.56 to $44.69 in afternoon trading.

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Elements of this story was generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on KSS at https://www.zacks.com/ap/KSS

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