By Eric Smith
Kohl’s Corp.’s trusty trio of active brands—Nike, Adidas and Under Armour—delivered solid sales in the second quarter, helping the department store top analysts’ earnings and revenue estimates as the company also raised guidance for fiscal 2018.
Menomonee Falls, WI-based Kohl’s reported net earnings in the second quarter ended August 4 rose 40 percent to $292 million, or $1.76 diluted earnings per share, beating Wall Street’s target by $300 million and 12 cents, respectively. The company notched a 3.1 percent comp gain and revenue of $4.6 billion, marking a 4 percent increase over Q2 2017; those figures beat consensus estimates of 2.6 percent and $4.3 billion, respectively.
National brand sales increased 4 percent, driven by strength in apparel and footwear and continued growth in the company’s active category, CEO Michelle Gass said on Tuesday’s earnings conference call with analysts.
“Nike, our largest national brand, continues to outperform the company through its core and new offerings which included launching golf this quarter,” she said. “Under Armour has delivered very strong growth in its second year and accelerated from its first quarter sales performance. Adidas had another outstanding quarter as our customers continue to react favorably to our expanded and elevated assortment.”
Kohl’s made a huge commitment last year to promoting the arrival of Under Armour in the company’s stores. The company aired broadcast spots on TV to support the launch—which Kohl’s deemed the largest in terms of product in the company’s history—and also relied heavily on social media, according to an article at the time in Advertising Age.
“The visual spots show intimate, real-life moments of an athletic start, but are representative of a major athletic achievement, recognizing that stepping up to the challenge, no matter the challenge, is a big deal,” Gass, who was then the chief merchandising and customer officer, told Advertising Age for the article.
Fast forward a year and a half and the investment has shown impressive returns, with Under Armour “accelerating its comp,” Gass said on Tuesday’s call.
The growth supports continued emphasis on active brands that Kohl’s is making, which includes a pilot program of increasing square footage of active product in select stores.
“As part of our efforts to invest in our active and wellness initiative in a bigger and bolder way, we recently launched an active expansion test in 30 stores earlier this month,” Gass said. “This expansion results in an increase in square footage for the active business by approximately 40 percent, and will provide customers with almost 50 percent more choices including unique items available only in these test stores.”
On last quarter’s conference call, Gass outlined the significant investments the company would make in extra space and fixturing to support the athletic brand expansion, adding that she expected the pilot to provide an indication of the expansion potential for the chain in the active category.
“We’ll learn from that in terms of how far this will roll out and scale, but I know we’ll get a lot of learnings that will impact our overall strategy with active,” she said in May. “I think we’d like to say it’s not a trend anymore, but we don’t see this letting up. And I’ll just reiterate we will be on this journey with the customer and deliver the kind of products and initiatives that they want from us.”
On Tuesday, Gass reiterated the importance of the program and said each store will give the company insight into how Kohl’s can “enhance the active presentation and remove lower productivity fixtures.”
“We feel like we’re continuing to drive localization and optimize the whole store experience, while we’re also expanding active,” Gass said. “In terms of active penetration, we penetrate in the upper teens. Of course, we’ve seen that grow even to date, even before this expansion, because of the great success we’re seeing.”
The strong performance from, and emphasis on, active brands wasn’t the only story from Kohl’s in Q2. Overall, men’s, women’s and footwear were the strongest performers, with children’s and accessories also reporting comp sales increases. In addition to balanced growth, gross margin increased 42 basis points thanks to the company’s “ongoing focus on inventory management,” CFO Bruce Besanko said.
Kohl’s also reported on Tuesday that the company has partnered with Authentic Brands Group, owner of Nine West, to sell the brand. ABG just closed on the acquisition of Nine West and Bandolino from Nine West Holdings Inc. in July. In addition to Nine West footwear, handbags and outerwear, Kohl’s will debut a new women’s apparel collection.
“We’re excited to bring Nine West, a brand synonymous with fashion and sophistication, to Kohl’s customers nationwide,” said Doug Howe, Kohl’s chief merchandising officer. “We admire the role Nine West has played in shaping the footwear industry and its success in becoming one of the most recognized and desired brands among female consumers, particularly millennial customers. The addition of the Nine West brand to our women’s portfolio further illustrates our commitment to delivering relevant, sought-after brands that will continue to drive new customers to Kohl’s.”
All of the upbeat news that Kohl’s reported on Tuesday resulted in the company raising guidance for fiscal 2018. Kohl’s now expects the company’s fiscal 2018 diluted earnings per share to be $4.96 to $5.36, compared to the company’s prior guidance of $4.86 to $5.31. Excluding the loss on extinguishment of debt, fiscal 2018 diluted earnings per share is expected to be $5.15 to $5.55 compared to prior guidance of $5.05 to $5.50.
Photo courtesy Kohl’s
[author] [author_image timthumb=’on’]https://s.gravatar.com/avatar/dec6c8d990a5a173d9ae43e334e44145?s=80[/author_image] [author_info]Eric Smith is Senior Business Editor at SGB Media. Reach him at eric@sgbonline.com or 303-578-7008. Follow on Twitter or connect on LinkedIn.[/author_info] [/author]
