Kohl’s beats Street with declining profits in Q2

Kohl’s Corp. saw earnings fall less than Wall Street analysts had expected as sales also declined in the second quarter of fiscal 2023.

The department store retailer reported net income of $58 million, or $0.52 per diluted share. This is down 59% from $143 million, or $1.11 per diluted share, in the second quarter of the prior fiscal year.

Net sales dropped 4.8% year-over-year to $3.7 billion from $3.9 billion, with same-store sales declining 5%.

In his commentary, Kohl’s CFO Tom Kingsbury cited growth at the retailer’s store-in-store Sephora shops, as well as the positive impact of inventory and expense reductions.

“Our second quarter earnings were in line with our expectations,” said Kingsbury. “We maintained strong sales momentum in Sephora at Kohl’s, reduced inventory by 14%, and managed expenses tightly. Further, solid cash flow generation allowed us to reduce our borrowings in the period.

“Many of our strategic efforts are just underway, which we expect will contribute incrementally in the back half of the year, and even more so in 2024 and beyond,” Kingsbury said. “We have enhanced the store experience and recently opened an additional 200 Sephora at Kohl’s shops and are taking steps to further optimize our assortment and simplify our value strategies.”

For the full year 2023, the company reaffirmed its financial outlook and currently expects the following:

• Net sales: A decrease of 2% to 4%, including the impact of the 53rd week of 2023, which Kohl’s says is worth approximately 1% year-over-year.
• Operating margin: Approximately 4%.
• Diluted earnings per share: In the range of $2.10 to $2.70, excluding any non-recurring charges.
• Capital expenditures: $600 million to $650 million, including expansion of its Sephora partnership and store refresh activity.
• Dividend: On August 8, 2023, the Kohl’s board of directors declared a quarterly cash dividend on the Company’s common stock of $0.50 per share. The dividend is payable September 20, 2023, to shareholders of record at the close of business on September 6, 2023.

In emailed commentary to Chain Store Age, David Silverman, senior director, Fitch Ratings, was cautiously optimistic about Kohl’s performance.

"Kohl’s reported a somewhat reassuring second quarter report in an increasingly volatile discretionary retail climate,” Fitch said. “While revenue was down 5% given spending pullbacks in Kohl’s key categories and ongoing mis-execution, the company was able to reign in inventory, produce positive cash flow in the quarter, and maintain its earnings guidance for the full year. Fitch expects the company to demonstrate improving profitability and cash flow as the year progresses despite topline headwinds, given efforts to reduce inventory and pull back discretionary expenses."