Kohl’s Corporation ((KSS)) has held its Q4 earnings call. Read on for the main highlights of the call.
Kohl’s Corporation’s recent earnings call reflected a mixed sentiment, with some positive developments overshadowed by significant challenges. While the strong performance of Sephora and improved gross margins were highlighted, the overall sentiment was tempered by declines in net sales, store closures, and underperformance in digital sales. The guidance for 2025 further underscores a cautious outlook, with anticipated decreases in sales indicating ongoing challenges in turning around performance.
Sephora as a Strong Sales Driver
Sephora emerged as a bright spot for Kohl’s, continuing to be a strong sales driver with beauty sales increasing by 13% in the fourth quarter. This segment has not only shown acceleration from the third quarter but also successfully attracted new customers, maintaining robust performance amidst broader challenges.
Improved Gross Margin
Kohl’s reported an improvement in gross margin, which increased by 49 basis points to 32.9% in the fourth quarter. This was attributed to optimizing promotional events and a lower digital penetration. For the full fiscal year 2024, gross margin saw an increase of 50 basis points to 37.2%, reflecting strategic efforts to enhance profitability.
Commitment to Operational Excellence
The company reiterated its commitment to operational excellence by reducing costs and investing in future growth. Actions taken in the fourth quarter resulted in lower spending in stores, marketing, and supply chain, leading to a decrease in SG&A expenses by 4.5%, showcasing Kohl’s focus on efficiency.
Decline in Net Sales
Kohl’s faced a significant decline in net sales, which dropped by 9.4% in the fourth quarter and 7.2% for the year. Comparable sales also decreased by 6.7% in the fourth quarter and 6.5% for the year, with notable underperformance in the digital business, highlighting the challenges the company faces in maintaining sales momentum.
Store Closures and Inventory Challenges
The company announced the closure of 27 underperforming stores and one e-commerce fulfillment center, resulting in a one-time charge of $76 million. Additionally, inventory was up 2% compared to last year, driven by investments to rebuild proprietary brand inventory, indicating efforts to manage stock levels amid sales declines.
Challenges in Digital Sales
Digital sales underperformed significantly, with a comparable sales decline of 13.4% in the fourth quarter and 8.7% for the year. The digital business faced headwinds from an inventory suppression issue, although some improvements were seen after corrective measures were implemented.
Sales Guidance for 2025
Kohl’s guidance for 2025 anticipates a decline in net sales by 5% to 7% and comparable sales by 4% to 6%. The company outlined a strategic turnaround that will take time, focusing on enhancing product assortment, re-establishing value and quality, and improving the omnichannel experience. Operating margins are projected to be between 2.2% and 2.6%, with earnings per share ranging from $0.10 to $0.60. Key initiatives include optimizing promotional strategies and reducing SG&A expenses by 3.5% to 5%.
In summary, Kohl’s Corporation’s earnings call highlighted a mixed outlook, with some positive aspects like Sephora’s strong performance and improved gross margins. However, these were overshadowed by significant challenges, including declines in net sales and digital underperformance. The guidance for 2025 reflects a cautious approach, with strategic changes expected to take time. Investors and stakeholders will be keenly watching how Kohl’s navigates these challenges in the coming years.