Kohl’s shares fall 25% after huge profit miss

Kohl shares fell 25% on Thursday after the company reported a surprise per-share loss that was well below Wall Street’s expectations for a slim profit.

This decline in shares accelerates the pace of the largest one-day percentage decline in history.

In an interview with CNBC, CEO Tom Kingsbury attributed slower sales to arduous comparisons. He said the department store had higher-than-usual sales levels last year as it tried to pristine up inventory and accelerate a turnaround plan.

He added that sales trends started the quarter in January and February but weakened in the last five weeks of the period as customers held off on purchasing seasonal goods such as spring clothing due to bad weather. He said: “Fortunately, this phenomenon is returning as the weather improves.”

In the eyes of investors, Kohl’s penniless results raised questions about the company’s turnaround strategy. Run by Kingsbury, the previous price chain leader Burlington Stores, Kohl’s tried to attract customers by adding fresh products such as home decor, gifts and pet supplies. It also opened more Sephora stores in its stores.

So far, these efforts haven’t translated much into numbers. Kohl’s reported a net loss of $27 million, or 24 cents a share, in the first quarter compared with a year-ago profit of $14 million, or 13 cents a share.

Net sales fell 5.3% to $3.18 billion from the prior year.

Here’s how Kohl’s did in theirs first fiscal quarter compared to Wall Street expectations, according to a survey of analysts conducted by LSEG:

• Loss per share: 24 cents against an expected profit of 4 cents
• Income: $3.18 billion against the expected $3.34 billion

On Thursday, the company lowered its forecast for 2024. It now expects full-year net sales to decline 2% to 4%. Wall Street analysts surveyed by LSEG expected 2024 sales forecasts to reflect growth of 0.2%.

According to LSEG, Kohl’s expects full-year diluted earnings per share to be between $1.25 and $1.85, significantly lower than the expected $2.34 per share.

In addition to the challenges facing the company, Kingsbury said the company has taken a more conservative stance in its full-year outlook due to higher interest rates and inflation.

“While spending remains steady for our high-income customers, the impact continues for middle-income customers,” it said in the release.

Despite the first-quarter results, he told CNBC that Kohl’s has made progress with newer initiatives. For example, he said, the women’s category has shown positive trends, and Sephora’s brick-and-mortar stores continue to have a mighty reputation.

For Sephora at Kohl’s, comparable sales – a metric that takes into account the impact of store openings and closings – were up 20% year-over-year in the quarter.

That’s significantly higher than Kohl’s comparable sales, which declined 4.4% over the same period.

Kohl’s plans to open another 140 Sephora stores in the second quarter. In March, it announced it would add similar Babies R Us locations to about 200 locations.

Kingsbury said other fresh categories were also performing well, with comparable sales of seasonal and everyday home decor items up more than 30%. Some of these gains are due to Kohl’s not previously offering many products in these categories. It has expanded its offering to offer more photo frames, wall decorations and decorative glassware such as vases.

“We will continue to work challenging on these underexplored categories,” Kingsbury said.

Stocks fell 13% year over year as Kohl’s tightened spending and tried to give itself more flexibility to respond quickly and buy fashionable goods. There was a focus on this, especially in the junior division, which is intended for teenage girls. Kohl’s is moving this department next to Sephora to encourage shoppers to browse clothes as well.

“You have to follow the trend at the right time,” Kingsbury said. “You definitely can’t follow a trend.”