Kohl’s Earnings Call: Mixed Sentiment and Strategic Focus

Kohl’s Corporation ((KSS)) has held its Q1 earnings call. Read on for the main highlights of the call.

Kohl’s Corporation’s recent earnings call revealed a mixed sentiment, with the company surpassing expectations in some areas while grappling with challenges in others. The first quarter performance was notably ahead of expectations, with positive momentum in sectors like jewelry and Sephora. However, the company is facing hurdles such as a decline in net sales, underperformance in digital sales, and tariff-related pressures. Despite these challenges, efforts are being made to address these issues, although the overall environment remains uncertain.

First Quarter Performance Ahead of Expectations

Kohl’s first quarter results exceeded expectations, showcasing the effectiveness of strategic actions that are beginning to resonate with customers. The company is building momentum in key areas, which is a positive sign for its future performance.

Jewelry Sales Rebound

Jewelry sales saw a significant rebound, increasing by 10% in the first quarter. This growth was primarily driven by Kohl’s card customers, following the reintroduction of jewelry and the rollout of 200 fine jewelry shops.

Sephora at Kohl’s Expansion

The expansion of Sephora at Kohl’s to all stores has been a major success, contributing to a nearly $2 billion beauty business. In the first quarter, net sales in this segment were up 6%, with comparable sales rising by 1%.

SG&A Cost Reduction

Kohl’s managed to reduce its SG&A expenses by 5.2% in the first quarter, achieving a leverage of approximately 32 basis points compared to last year. This reduction was driven by lower spending in stores and marketing.

Proprietary Brands Showing Improvement

The company’s proprietary brands demonstrated sequential improvement, with first-quarter performance approximately 400 basis points better than the fourth quarter. This was driven by strong performance in brands like Tek Gear and Lauren Conrad.

Net Sales Decline

Despite some successes, Kohl’s experienced a net sales decline of 4.1% and a comparable sales decrease of 3.9% in the first quarter, highlighting areas that need attention.

Digital Business Underperformance

The digital segment underperformed, with sales declining by 7.7% in the quarter. This was particularly evident in the home category and among core credit customers.

Core Kohl’s Credit Customer Lag

Sales to core Kohl’s card customers continued to lag, attributed to factors such as downsizing in jewelry, exiting the Petite business, and increased coupon exclusions.

Tariff-Related Challenges

Ongoing tariffs present a fluid situation for Kohl’s, affecting pricing and inventory strategies. The company is making efforts to mitigate these impacts, but challenges remain.

Interest Expense

Interest expense for the first quarter was $76 million, a decrease of $7 million from the previous year, reflecting the company’s efforts to manage financial costs.

Forward-Looking Guidance

Looking ahead, Kohl’s maintains its guidance for fiscal 2025, projecting comparable sales to decline by 4% to 6%, with an operating margin of 2.2% to 2.6%, and diluted EPS ranging from $0.10 to $0.60. The company is focusing on strategic initiatives such as offering a balanced product assortment, enhancing value and quality, and delivering a seamless shopping experience. Despite macroeconomic uncertainties, Kohl’s aims to achieve its financial goals by optimizing store layouts, refining promotions, and enhancing inventory management.

In summary, Kohl’s Corporation’s earnings call highlighted a mix of positive momentum and ongoing challenges. While the company has made strides in areas like jewelry and Sephora, it continues to face hurdles such as declining net sales and digital underperformance. The forward-looking guidance reflects a cautious optimism, with strategic initiatives aimed at overcoming current challenges and achieving long-term financial goals.