Kohl’s on Tuesday reported a 13.3% decline in quarterly net sales, as the coronavirus pandemic limited the number of people visiting its stores to buy work clothes, shoes and makeup.
Still, CEO Michelle Gass said the results exceeded Kohl’s internal expectations, thanks to robust digital sales growth and a burgeoning active apparel business.
Kohl’s is entering the holidays “well-positioned” to rival its peers and take advantage of the market share up for grabs in the wake of numerous retail bankruptcies and store closures this year, Gass said. The retailer significantly cut its inventories during the latest quarter, putting it in a position where it will be less reliant on discounts during the holiday season.
Kohl’s shares rose nearly 3% in early trading.
Here’s how the retailer did during the third quarter ended Oct. 31 compared with what analysts were expecting, based on Refinitiv data:
- Earnings per share: 1 cent, adjusted, vs. a loss of 43 cents expected
- Net sales: $3.78 billion vs. $3.86 billion expected
For the quarter ended Oct. 31, the company reported a net loss of $12 million, or 8 cents per share, compared with net income of $123 million, or 78 cents per share, a year ago. Excluding one-time charges, Kohl’s earned a penny a share, better than the 43-cent loss expected by analysts.
Kohl’s net sales fell to $3.78 billion from $4.36 billion a year ago. Analysts were calling for $3.86 billion, according to Refinitiv estimates.
Total revenue dropped 14% to $3.98 billion from $4.63 billion a year earlier.
Same-store sales at Kohl’s, which track sales online and at Kohl’s stores open for at least 12 months, also fell 13.3%. Analysts, on average, were calling for an 11.39% decline.
But the company said it did report positive sales growth in three categories — athleisure, lounge and sleepwear — which it has been investing in heavily.
Kohl’s strategy heading into 2021 is to trim the amount of dressier merchandise it has in stores and focus more on adding active and comfortable clothing. It plans to launch a new athleisure brand, called FLX, next year, while expanding the amount of space devoted to activewear in its stores by almost 20%.
“Our vision is to be the most trusted retailer of choice for the active and casual lifestyle,” Gass said.
Kohl’s has also been bringing more casual wear brands into its stores, such as Lands’ End. The company currently offers the complete Lands’ End catalog online, and plans to double the number of stores that sell Lands’ End apparel in 2021.
Outside of apparel, Kohl’s said it plans to at least triple its sales in beauty, seeing this category as another growth opportunity, where it competes with the likes of Ulta Beauty and Sephora. But some of Kohl’s rivals are looking to grow in beauty, too. Target and Ulta earlier this month struck a deal to open makeup and skincare shops inside of hundreds of Target stores across the country.
Kohl’s is also testing a shop called Wellness Market in 50 stores, which includes personal care products, baby goods and pet items.
Beauty “is a small business for us today, but we’ve made steady progress over the last five years,” Gass said. “We see a lot of upside.”
The retailer is seen as having a leg up on mall-based department stores like Macy’s and Nordstrom, since most of its locations are in open-air shopping centers. But it still faces competition from the likes of Target and Walmart, with the latter reporting Tuesday same-store sales gains in the U.S. of 6.4%, and e-commerce sales growth of 79%.
Kohl’s also said it will reinstate its quarterly dividend in the first half of 2021, after pausing it earlier this year due to the pandemic. And in a bid to boost liquidity, it said it fully paid off a $1 billion balance on a revolving line of credit during the third quarter.
As of Monday’s market close, Kohl’s shares are down about 49% this year. Kohl’s has a market cap of $4.1 billion.
Find the full earnings press release here.