Kohl's disappoints in Q3 despite location advantage
Published Nov. 17, 202
Kohl's on Tuesday reported that total third quarter revenue fell 14% year over year to $3.98 billion. Digital sales rose 25% in the period, according to a company presentation.
Store comps fell 13.3%, slightly below Credit Suisse analyst expectations for 12%. Gross margin contracted 48 basis points to 35.8%, according to a company press release.
The department store swung to a loss year over year, from net income of $123 million last year to a $12 million dollar net loss in the quarter ending Oct. 31.
Kohl's remains dependent on its stores for its recovery from the pandemic.
The retailer has enjoyed a fairly healthy pickup in store visits, according to data from Placer.ai, which this week attributed that to its location mostly in open air and strip centers; executives Tuesday noted that 95% of its stores are away from the mall.
GlobalData Retail Managing Director Neil Saunders similarly called it a major reason to be "more optimistic about Kohl's than other department stores" because that's where so many people are shopping right now, and because it's easier to "implement services like curbside collection."
Credit Suisse analyst Michael Binetti on Tuesday called its e-commerce rise in the third quarter "disappointing," however.
The retailer appears to be addressing that. CEO Michelle Gass told analysts Tuesday morning that the company is working to leverage stores more for online orders and continue improvements in personalization, for example.
Kohl's will also elevate certain categories, including active and casual wear, with the aim of expanding those sales from 20% to 30%, improving its women's apparel assortment and expanding its better beauty counters, according to Gass. The company has "tremendous opportunity to build a significant beauty business" and has already expanded its improved beauty counters to 62 stores, Gass said.
That's a wise play, considering Kohl's potential in the space, according to GlobalData, which has found that many Kohl's customers are "active beauty buyers" who tend to buy from Ulta and other rivals.
"If Kohl's can develop a more compelling and coherent beauty offer it has the potential to take a larger slice of wallet," Saunders said in emailed comments. "Such a move will help it pivot away from less successful categories like apparel."
Gass touted the company's loyalty strength, and said it has learned how important value is to its best customers. As a result, Kohl's will invest in lowering prices, Gass said.
Kohl's has its work cut out for it, considering that Target has been innovative in activewear and beauty (partnering with Ulta last week), and that Bed Bath & Beyond's improvements in home is a threat to Kohl's in one of its areas of strength. If Kohl's is going to continue its dependence on stores, it may need to clean things up a bit.
"[O]ne area that Kohl's need to fix is the general ambience of its stores, many of which are still very cluttered and do not present an optimal shopping experience to the customer," Saunders noted.