On Kohl’s first-quarter analyst call, Tom Kingsbury, its recently-appointed CEO, said the active category was “healthier in the period, outperforming the company average with a positive growth in apparel and continued success in outdoor.” The top-performing national brands for the department store chain were many active-lifestyle brands, including Nike, Izod, Columbia, Hurley, and Eddie Bauer.

Haggar, the maker of casual pants, was the only other national brand cited among top sellers.

The active category underperformed for Kohl’s last year as consumers shifted to more career and dressier looks with the return to in-office work and socializing and away from activewear and relaxed styling seen in the earlier stages of the pandemic.

In February on Kohl’s fourth-quarter call, Kingsbury, who took over as CEO in February of this year, announced that Kohl’s is planning to slightly deemphasize the activewear category after expanding it for years to make room for more casual and career looks as well as to explore newer opportunities in home and gifting.

He repeated the plan on the first quarter call. Kingsbury said, “We’re still committed to the active business, but we’re looking for a rebalance.”

Asked to elaborate on the active performance in the Q&A section of the call, Jill Timm, CFO, said positive comps were seen in active apparel while athletic footwear still lagged but showed some encouraging signs. She said, “Footwear, as you know, has definitely been something that has been lagging the business, but we have seen some relative improvement there, particularly across our top three brand vendors,” referencing Nike, Adidas and Under Armour.

The CFO also noted that Flx, Kohl’s athleisure brand, was among Kohl’s top-performing private labels while Tek Gear, its opening price-point activewear brand, has continued to perform well. Timm added, “But I think the big push we saw this quarter was really getting our top three brands back to growth in some instances and moderating where they had fallen off in fourth quarter and third quarter of last year.”

Companywide, Kohl’s reported a surprise profit in the first quarter due to margin improvement and tight cost controls despite aggressive moves to reduce inventory levels. The retailer maintained its outlook for the year.

Shares of Kohl’s rose $1.45, or 7.5 percent, to $20.72 Wednesday on the New York Stock Exchange

“Our overall first quarter results were in line with our expectations, and we made progress against each of our key priorities for 2023 despite continuing to operate in a challenging macroeconomic backdrop,” said Kingsbury. “We are refining our strategy, continuing to enhance our merchandising processes and elevate our focus on the customer. While it will take time for the full impact of our efforts to be realized, I am happy with how the entire Kohl’s team is driving against these priorities with a clear focus and strong determination. Our objective is to show incremental improvement as we move through 2023, and we set ourselves up to accomplish this with our first quarter performance.”

In the quarter ended April 29, sales decreased 3.3 percent year-over-year, to $3.36 billion, slightly below analysts’ consensus estimate of $3.42 billion. Comparable sales were down 4.3 percent. February was the strongest performance, March was below expectations, and April was in line.

Store sales were up low single-digit percent driven by strong Sephora at Kohl’s growth as well as clearance actions. Digital sales were down 19.6 percent to last year.

From a product perspective, national brands outperformed private brands in the quarter.

Accessories were the best-performing line of business, up 31 percent to last year. Strong sales growth in Beauty was partially offset by lower sales of jewelry, which again was largely impacted by the in-store displacement associated with removing the fine jewelry counter to make room for Sephora shops.

Children’s and men’s apparel outperformed the company average, while home, footwear and women’s underperformed. Other revenue, which is primarily our credit business, declined 11 percent in the first quarter, pressured by normalizing loss rates, which were expected.

Q1 gross margin was 39 percent, up 67 basis points from last year. The improvement was driven by a decline in digital-related cost of shipping, lower freight expense, and simplifying its value strategies partially offset by product cost inflation and higher shrink.

SG&A expenses were down 4.2 percent to $1.2 billion. The decline was driven by fewer Sephora openings and related store refreshes as compared to last year as well as disciplined expense management across corporate and marketing, which offset continued wage headwinds. As a percent of revenue, SG&A expenses were 34.7 percent, a decrease of 13 basis points year-over-year.

Operating income climbed 19.5 percent to $98 million from $82 million in the prior year. As a percent of sales, operating income was 2.8 percent, an increase of 55 basis points year-over-year.

Inventory at quarter end was down 6 percent compared to last year. Timm, said, “We feel good about our inventory level entering Q2, and remain focused on driving turnover.”

Kohl’s said it remains committed to strengthening the balance sheet and maintaining its current dividend. The company retired $164 million of bonds that matured in February 2023 and expects to retire $111 million of bonds maturing in December 2023.

Kohl’s affirmed its full-year 2023 financial outlook that calls for:

  • Net sales to decrease in the range of 2 percent to 4 percent, including the impact of the 53rd week which is worth approximately one percent year-over-year;
  • Operating margin of approximately 4.0 percent; and
  • EPS, excluding any non-recurring charges, in the range of $2.10 to $2.70.

Photo courtesy Columbia