Kohl’s Falls After New Forecast Cut In Inflation Pressure, Sephora Will Expand To Kohl’s Stores

Kohl’s Falls After New Forecast Cut In Inflation Pressure, Sephora Will Expand To Kohl’s Stores

Shares of Kohl’s Corp. sank after the company slashed annual profit and sales guidance for the second straight quarter as inflation suppresses demand and costs continue to rise.

The department store chain now expects earnings per share, excluding some items, in the range of $2.80 to $3.20. Kohl’s had already cut its forecast in May, telling investors to expect between $6.45 and $6.85.

Net sales for the year are projected to decline 5 percent to 6 percent, Kohl’s said in a statement Thursday, down from an outlook already cut from flat to a 1 percent increase this year.

Kohl’s is struggling as inflation drives up its costs and puts pressure on consumer budgets, even though sales growth had been elusive even before the macroeconomic environment deteriorated. On Thursday, the retailer said middle-income shoppers had become more price-conscious, with some spending less per transaction, taking fewer trips and switching to value brands.

“We have adjusted our plans, implementing actions to reduce inventory and cut expenses to account for a softer demand outlook,” CEO Michelle Gass said in a statement.

Kohl’s shares fell as much as 10 percent in New York trading. The stock was already down 31 percent this year through Wednesday.

Inventories in the quarter ended July 30 rose 48 percent from a year earlier due to lower sales and other factors, including investments to support the opening of 400 Sephora stores at Kohl’s locations in 2022. The retailer has Lean on LVMH-owned beauty business to drive sales and attract new customers. Excluding add-on items, inventories increased 27 percent.

‘To lose the thread’

Not everyone is convinced that inflation is to blame. The main sources of Kohl’s problems are internal, said Neil Saunders, a US-based analyst at consultancy GlobalData Plc.

“The company has lost its way in terms of merchandising and range planning and appears to be taking a seemingly random buying approach,” Saunders said in an email.

Meanwhile, gross margin decreased 2.9 percentage points in the quarter due to freight costs, product inflation and increased promotions.

The closely watched metric of same-store sales fell 7.7 percent. Analysts had expected a drop of 7.4 percent, based on the average of five estimates compiled by Bloomberg.

Kohl’s has faced intense pressure from activists to sell after a long period of declining sales. The board recently took the company off the market after it failed to reach a potential $8bn deal, just two months after rejecting an attempt by investor Macellum Capital Management to reform the board.

On Thursday, the retailer said it signed a $500 million accelerated share repurchase agreement. Saunders said the funds should be spent on revitalizing the stores.

By Daniela Sirtori-Cortina

Learn more:

Why activist investors are targeting department stores

Hedge funds are urging Kohl’s and Macy’s to consider sweeping changes to the way they operate as retailers struggle to reverse decades of decline.

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