Kohl’s Corp. is still waiting for its strategy to roll out Sephora and become the nation’s destination for active and casual offerings to show some fruit.
As expected, the Menomonee Falls, Wisconsin-based Kohl’s on Wednesday reported top- and bottom-line declines for the fourth quarter and for all of 2022, but sees less of a sales decline in the year ahead.
For the quarter ended Jan. 28, the net loss amounted to $273 million, or $2.49 per diluted share, compared to net income of $299 million, or $2.20 per diluted share, in 2021. The figure, falling below Wall Street’s expectations, pulled the stock price down around 7 percent by 8 a.m. in pre-market trading Wednesday.
Net sales decreased 7.2 percent to $5.8 billion from $6.2 billion with comparable sales down 6.6 percent.
“Kohl’s fourth-quarter results reflect meaningful proactive measures we took to better position the business for 2023, as well as sales pressure driven by the ongoing persistent inflationary environment,” Tom Kingsbury, Kohl’s chief executive officer, said in a statement. “Kohl’s has a solid foundation and a highly motivated team with a set of priorities to capitalize on what I see as a substantial opportunity to make a difference in the retail landscape.
“Our efforts to drive the business are already underway,” Kingsbury added. “We are refining our strategy and reestablishing merchandise disciplines with a customer-centric focus across the organization. I am confident that our efforts will drive improved, and more consistent, sales and earnings performance over the long term.”
In the past month, top management has been rebuilt. Dave Alves became president and chief operating officer. Nick Jones became chief merchandising and digital officer. And Kingsbury became CEO after serving for a brief period as interim CEO.
“During the past three months, I have had the opportunity to assess our go-to-market strategies, our operational capabilities and processes in our organizational structure. I have also visited a number of our stores across the country and engaged with many of our brand partners,” Kingsbury said during a conference call with analysts Wednesday. “It is clear to me that Kohl’s fields an important need in the market, offering highly relevant products at a great value to millions of customers in conveniently located stores across the U.S. and online. We are making great strides in beauty through our Sephora partnership. However, we have lost some ground in other key categories. Candidly, I know we can do better.
“To reach our full potential, we will refine our strategy and reestablish merchandise disciplines with a customer-center focus across the organization,” the CEO added. “This will sharpen our positioning with customers, allow us to capitalize on new opportunities and drive greater efficiency. Our efforts have already begun.In other results for the quarter, inventory was $3.2 billion, an increase of 4 percent year-over-year.
“The full impact of our efforts will take some time,” Kingsbury said. “It won’t happen overnight and we must acknowledge that we are implementing these actions in a challenging macroeconomic backdrop.”
He cited four priorities for 2023: enhance the customer experience, accelerate and simplify the value strategies, manage inventory and expenses with discipline and strengthen the balance sheet.
He said another 250 Sephora shops will open, bringing the total to more than 850 stores in the standard 2,500-square-foot space. Also, 50 smaller Sephora shops will open by the end of this year.
Kingsbury also cited the need to further boost casualwear and careerwear, including dresses, as well as increasing home and gifting areas, the online marketplace format and the media network. Kohl’s also plans to test everyday low pricing and launch a co-branded Kohl’s/Capital One credit card.
The operating loss last quarter was $302 million compared to operating income of $450 million in the prior year. Operating cash flow was $707 million driven by improvements in working capital during the fourth quarter of 2022.
Selling, general and administrative, or SG&A, expenses decreased 0.6 percent year-over-year, to $1.7 billion.
For all of 2022, there was a net loss of $19 million, or $0.15 per diluted share. This compares to net income of $938 million, or $6.32 per diluted share, and adjusted net income of $1.1 billion, or $7.33 per diluted share, in the prior year.
Net sales decreased 7.1 percent year-over-year, to $17.2 billion from $18.5 billion with comparable sales down 6.6 percent.
Operating income was $246 million compared to $1.7 billion in the prior year. As a percentage of total revenue, operating income was 1.4 percent, a decrease of 729 basis points year-over-year. Operating cash flow was $282 million.
SG&A expenses increased 2 percent year-over-year, to $5.6 billion.
For 2023, the forecast is as follows:
- net sales will decrease 2 to 4 percent, including the impact of the 53rd week which is worth approximately 1 percent year-over-year;
- operating margin will be approximately 4 percent;
- diluted earnings per share will be in the range of $2.10 to $2.70, excluding any non-recurring charges, and
- capital expenditures are seen in the range of $600 million to $650 million, including expansion of its Sephora partnership and refreshing stores.