Kohl’s swings to surprise Q4 loss, warns on profit for year

Kohl’s plans to cut inventory by roughly 5% this year, be more surgical with discounts and change how it showcases its merchandise to get shoppers to buy after the department store chain reported a big loss and a sales slump in the fourth quarter.

The retailer, based in Menomonee Falls, Wisconsin, also issued an annual profit outlook that fell below Wall Street expectations as the company grapples with customers cutting back on discretionary items amid stubbornly high inflation.

Shares dropped as much as 10% before the opening bell Wednesday but clawed back some of those losses after Kohl’s executives detailed plans to energize its business.

In a conference call with analysts, newly appointed CEO Tom Kingsbury said Kohl’s is making progress in cosmetics with its Sephora partnership, whose beauty shops were launched in 2021 and are being rolled out throughout the chain.

However, he acknowledged that the department store chain has lost ground in other key categories.

“Candidly, I know we can do better,” Kingsbury said.

A number of major retailers, Target, Walmart and Home Depot among them, have issued weaker financial outlooks for 2023 in a challenging economic environment for Americans.

But Kohl’s, which has been under pressure from shareholders to revive sales, has been particularly hard hit because it relies heavily on sales of discretionary items like clothing and caters to middle-income shoppers more vulnerable to rising prices.

Yet industry analysts believe Kohl’s has made significant missteps.

Neil Saunders, managing director of GlobalData Retail, said that stores have grown messy and unappealing for shoppers.

“Over the holidays, shops should be inspiring and uplifting, enticing consumers into buying,” said Saunders. ”Unfortunately, Kohl’s were the exact opposite with messy merchandise, bad lighting, and uncoordinated ranges all contributing to a dispiriting and confusing experience. Sadly, this problem has been getting worse over time and it is one of the first things the new executive team should address if it wants to stop the rot. ”

The disappointing performance underscores the headwinds that Kingsbury faces. Kingsbury, who was interim chief executive, was named its permanent CEO last month.

The Kohl’s board member took over for Michelle Gass, who was named president of Levi Strauss & Co. late last year.

On Tuesday, Kohl’s announced that 30-year retail veteran Dave Alves will become Kohl’s president and chief operating officer, reporting to Kingsbury, in April.

Kohl’s is cutting the number of general merchandise managers almost in half, from four from seven, with hopes of making the company more agile.

The company is paying close attention to inventory levels, too. Retailers, including Kohl’s, had to slash prices last year as Americans shifted their spending from clothing to nights out, travel or, because of inflation, on buying necessities like food.

Kohl’s inventory was up 48% year-over-year at the end of the second quarter, and up 34% at the end of the third. Inventory was up 4% year’s end, the company said.