A cautious approach among consumers to their spending habits has led to noticeable repercussions, with several retailers bearing the impact. In the second quarter, Kohl’s (NYSE:KSS) managed to surpass earnings expectations; however, its profits underwent a stark 53% decline compared to the same period last year.
The adjusted earnings per share stood at $0.52, surpassing analyst predictions of $0.23 for Q2, as confirmed by Bloomberg data. This figure is in stark contrast to the $1.11 earnings per share reported during the equivalent time frame a year ago.
An unfortunate dip of 5.0% was observed in same-store sales, falling below the forecasted 4.62% contraction anticipated by analysts. Likewise, net sales faced a 4.8% decline, amounting to $3.68 billion, slightly below the projected $3.71 billion.
Kohl’s strong performance in its Sephora segment remained a beacon of hope. During a conference with investors, CEO Tim Kingsbury, who took the reins in February, highlighted the exceptional performance of Sephora at Kohl’s, exceeding expectations and attracting a fresh wave of customers who are engaging in more frequent shopping. Kingsbury emphasized that these Sephora patrons tend to be a younger and more diverse demographic.
Notably, there was a 14% reduction in inventory compared to the previous year, although this outcome fell short of analyst estimations.
In response to the results, Kohl’s stock experienced fluctuations in premarket trading, ultimately rising by 1% during the early trading hours.
Key Earnings Highlights
Here is a summary of Kohl’s Q2 results compared to estimates, as per Bloomberg data:
- Net Sales: $3.68 billion (Expected: $3.71 billion)
- Adjusted EPS: $0.52 (Expected: $0.23)
- Same-Store Sales: -5% (Expected: -4.62%)
- Gross Margin: 39% (Expected: 38.6%)
- Adjusted Net Income: 58% (Expected: 27.26%)
- Inventories: -14%
Credit Card Payments and the 2023 Outlook
Kohl’s is not immune to the recent surge in credit card debt balances and delinquencies, a concern highlighted by Yahoo Finance’s Janna Herron. Kohl’s CFO Jill Timm noted a decline in payment rates coupled with an increase in losses, which could raise concerns among investors.
Timm acknowledged that credit losses saw an increase compared to the unusually low figures of the previous year. However, she underlined that proactive measures were taken in anticipation of a worsening macroeconomic environment and reduced disposable income among consumers. Despite these challenges, payment levels remain higher than those recorded in 2019.
During Q2, the retailer introduced a credit card offering in collaboration with Capital One (COF), aimed at catering to customers who may have been reluctant to opt for a private label credit card. This initiative is part of Kohl’s strategy to appeal to younger consumers.
Looking ahead to the entirety of 2023, Kohl’s anticipates a decline in net sales ranging between 2% and 4%. The projected operating margin stands at 4%, while the range for adjusted earnings per share is set at $2.10 to $2.70.
CEO Tim Kingsbury emphasized that numerous strategic initiatives are currently underway, with expectations of incremental contributions in the latter half of this year, and even more pronounced effects in 2024 and beyond. Kingsbury’s confidence in the long-term potential of the company remains resolute.
During Q2, the company successfully introduced 200 Sephora outlets, with plans to unveil an additional 50 this month, culminating in a total of 850. Furthermore, the company is set to launch 45 smaller-format Sephora shops, spanning 750 square feet each, within the remaining chain locations come October. This move will bring the total count to 900 stores by the conclusion of 2023.
Pre-Earnings Analyst Perspectives
“Similar to the previous quarter, KSS once again outperformed expectations on the bottom line, primarily driven by improved SG&A, with sales and gross margin also slightly exceeding consensus estimates. Management reiterated its annual guidance of $2.10-2.70, compared to the consensus of $2.38. While the absolute trends may not be favorable, they do not appear to be deteriorating further, and inventory conditions have improved (a 14% reduction in 2Q compared to a 6% reduction in 1Q). The reaffirmation of dividend commitment by management is noteworthy, particularly in light of recent dividend reductions by competitors. Additionally, no concerning signals were raised regarding the company’s credit business, differentiating it from some peers. The upcoming conference call will provide insight into current trends.”
Featured Image: Megapixl © Sakkawokkie
Author Faith Yakubu 
