Kohl’s (KSS) releases long-term financial targets on Investor Day 2022

Kohl’s on Monday released new long-term financial targets, including a small single-digit percentage year-on-year increase in sales, as the retailer faces pressure from activists to consider selling and revealing the value of its properties.

Ahead of a planned virtual investor meeting, Kohl’s announced that it intends to increase Sephora’s annual sales to over $2 billion. So far, Kohl’s has opened about 200 Sephora stores in its brick-and-mortar stores, and will reach 850 by next year. The company has not previously disclosed Sephora’s revenue in its income statement.

Kohl’s also said it plans to open more than 100 smaller stores over the next four years to attract new customers. CEO Michelle Gass said in an interview that smaller stores average around 35,000 square feet, with one of the first being tested in the Seattle area. By comparison, a typical Kohl’s store is about 80,000 square feet.

“This is a big year for us,” she said over the phone. “The framework that we have developed for investors… is a very thoughtful guide for us.”

Gass added that Kohl’s is undergoing significant changes to its business model to become the retailer of choice in the active and casual lifestyle categories.

In addition to a longer-term revenue target, Kohl’s said it would target operating margins of 7% to 8% per annum; average to high percentage growth in earnings per share; and operating cash flow of over $5.5 billion, of which about $2.5 billion is free cash flow between 2022 and 2024.

Monday’s meeting with investors and analysts is in the spotlight as the retailer faces increased pressure from activist groups, one of which is seeking to take control of the retailer’s board of directors.

Last month, Kohl’s rejected takeover bids that were on the table, saying they underestimated its business. However, in recent weeks, Kohl’s has said it is working with bankers and other financial advisers to review unsolicited bids, and is actively outreaching potential buyers.

Macellum Advisors and Engine Capital activists argue that Kohl’s is losing ground to other non-mall retailers like Target and TJ Maxx, and even some department store chains, including Macy’s. Kohl’s shares are up just 6% over the past 12 months compared to Macy’s, which is up about 65%. The firms also urged Kohl’s to consider selling and leasing out some of its properties to unlock capital.

On Friday, Macellum called Kohl’s recently released fourth-quarter financial results disappointing, saying it remains skeptical about the retailer’s future given its current board and management structure.

“Why were sales uniquely hampered by supply chain issues compared to many other retailers?” asked Macellum managing partner Jonathan Duskin.

For the three-month period ending Jan. 29, Kohl reported $6.22 billion in revenue, slightly below analysts’ estimates, but it posted a more optimistic 2022 revenue guidance despite continued supply chain hurdles. The retailer also said it plans to double its annual dividend and buy back at least $1 billion worth of its shares this year.

On Monday, Kohl’s highlighted its plans to further expand its range of outdoor and casual apparel and accessories. The company said it also hopes to significantly expand its womenswear business, as well as expand its range of outdoor and swimwear, as well as expand its range of available sizes.

In the long term, Kohl’s predicts its digital business will generate $8 billion in annual revenue, thanks in part to ongoing efforts to make it easier for visitors to find brands and shop on its website. Kohl’s total revenue in fiscal 2021 was $19.4 billion, up from $16 billion a year earlier.

“We have shown that we have a very strong program of growth drivers that will have a long tailwind ahead of us, so that gives us confidence,” Gass said.

The company also said it will be rolling out self-service online and in-store pickup capabilities at all locations this year, while it continues to test self-service refunds and in-store payment offerings.

Kohl’s Virtual Investor Day is due to start at 9am ET.

The full Kohl’s press release can be found here.

This story is evolving. Please stay tuned for updates.