Kohl’s forecast cuts blame inflation for lower sales by middle-income shoppers

Kohl’s forecast cuts blame inflation for lower sales by middle-income shoppers

People walk near the entrance of a Kohl’s department store on June 7, 2022 in Doral, Florida.

Joe Raedle | Getty Images

Kohl’s on Thursday again lowered its financial forecast for the year, saying its middle-income customers have been particularly hard hit by higher inflation, which is dampening sales.

The retailer said shoppers are making fewer trips to stores, spending less money per transaction and choosing Kohl’s less-expensive store brands more.

Chief Executive Officer Michelle Gass said in a statement that the company is adjusting its business plans and taking action to reduce inventories and cut spending “to reflect the weakening demand outlook.”

Kohl’s shares fell in premarket trading even after Kohl’s analysts beat expectations for fiscal second quarter earnings and revenue as investors focused more on future guidance.

Kohl’s now expects net sales to decline 5% to 6% in fiscal 2022, compared to a prior range of flat to 1% above prior-year levels. Adjusted earnings per share are also now expected to come in between $2.80 and $3.20, compared to previous guidance of $6.45 to $6.85.

Kohl’s bleak outlook follows the company ending talks to sell its business to Franchise Group, owners of The Vitamin Shoppe, in late June amid deteriorating retail conditions during the bidding process. For months, Gass and her team faced mounting pressure from activist investors to seek a sale of the company.

At the time, Kohl pointed to a difficult financing and retail environment that stood in the way of reaching an “acceptable and fully workable agreement.”

The news from Kohl’s also comes the same week that Walmart and Target both reiterated their full-year guidance, even as their earnings are under pressure.

Walmart said more upper- and middle-income consumers were visiting its stores in search of discounted items, which contributed to its overall performance. However, Target’s revenue has been weighed down by efforts to sell excess merchandise at deep discounts ahead of the holiday season.

Kohl’s inventories rose 48% year over year last quarter on lower sales. The company also said that this increase was due to its recent investments in beauty for its Sephora partnership and its strategy to package and stock more goods.

Here’s how Kohl’s performed for the fiscal second quarter ended July 30, compared to analysts’ expectations based on Refinitiv Estimates:

  • Earnings per share: Adjusted $1.11 vs. $1.03 expected
  • Revenue: $4.09 billion versus $3.85 billion expected

Kohl’s net income for the three-month period ended July 30 fell to $143 million, or $1.11 per share, from $382 million, or $2.48 per share, in the prior year.

Revenue fell 8.5% to $4.09 billion, compared to $4.45 billion a year earlier.

Same-store sales, which track sales at Kohl’s stores that have been open for at least 12 months, fell 7.7%.

“Even though 2022 has turned out to be more challenging than initially expected, Kohl’s remains a financially strong company,” said Gass.

The company announced Thursday that it has entered into an accelerated stock repurchase agreement to repurchase approximately $500 million of its common stock.

Kohl’s also said it stands by its previously announced quarterly cash dividend of 50 cents per share, payable to shareholders on September 21.

Kohl’s shares are down about 31% this year through Wednesday’s close.