Kohl’s Corp. received a lift on Wall Street Wednesday morning, August 28, when the retailer raised its full-year earnings outlook after reporting second-quarter results. The mid-tier retailer net sales decreased 4.2 percent year-over-year (y/y) to $3.5 billion, with comparable sales down 5.1 percent y/y.

“We have taken significant action to reposition Kohl’s for future growth,” commented Tom Kingsbury, CEO of Kohl’s Corporation. “However, our efforts have yet to fully yield the intended outcome due, in part, to a continued challenging consumer environment and softness in our core business. During the second quarter, our customers exhibited more discretion in their spending, which pressured our sales even as customers transacted more frequently. This overshadowed strong performance in our key growth areas, including Sephora, home decor, gifting, and impulse. In spite of this, we continued to execute well operationally, enabling us to deliver a 13 percent increase in earnings driven by gross margin expansion and strong inventory and expense management.”

Income Statement Summary

  • Gross margin as a percentage of net sales was 39.6 percent, an increase of 59 basis points y/y.
  • Selling, general & administrative (SG&A) expenses decreased 4.2 percent y/y to $1.2 billion in Q2. As a percentage of total revenue, SG&A expenses were 33.5 percent, a decrease of one basis point year-over-year.
  • Operating income was reported at $166 million for the quarter, compared to $163 million in the prior year. As a percentage of total revenue, operating income was 4.4 percent, an increase of 26 basis points year-over-year.
  • Net income for the three-month period ended August 3 was $66 million, or 59 cents per diluted share, compared to a net income of $58 million, or 52 cents per diluted share in the prior-year Q2 period.

Inventory at quarter-end was $3.2 billion, a decrease of 9 percent y/y. Operating cash flow was $254 million as compared to $430 million in the prior year. The redemption of the remaining 9.50 percent notes due May 15, 2025, reduced long-term debt by $113 million.

Six Months Fiscal Year 2024 Results

  • Net sales decreased 4.7 percent y/y to $6.7 billion;
  • Comparable sales declined 4.8 percent y/y;
  • Gross margin was 39.6 percent, an increase of 54 basis points y/y;
  • SG&A expenses decreased 2.5 percent y/y to $2.5 billion;
  • SG&A expenses margin was 34.8 percent, an increase of 78 basis points y/y;
  • Operating income was $209 million in the first half, compared to $261 million in the 2023 H1 period;
  • Operating margin was 2.9 percent of sales, a decrease of 56 basis points y/y; and
  • Net income for H1 totaled $39 million, or 35 cents per diluted share, compared to $72 million, or 65 cents per diluted share in the prior-year H1 period.

Operating cash flow was $247 million for the first half compared to $228 million in the prior-year comparative period. The redemption of the remaining 9.50 percent notes due May 15, 2025, reduced long-term debt by $113 million.

“Looking ahead, we are focused on ensuring that the substantial work that we’ve done across product, value, and experience is fully recognized by both new and existing customers,” Kingsbury added. “We will also capitalize on new opportunities, such as our partnership with Babies “R” Us, and expect to continue to benefit from our key growth areas. Our conviction in our strategy remains strong and our operating discipline, solid cash flow generation, and healthy balance sheet will continue to support us as we work to return Kohl’s to growth.”

Full Year Outlook
The company’s guidance excludes the potential impact of credit card late fee regulatory changes for the full year 2024, which has 52 weeks compared to 53 weeks in the full year 2023.

The company currently expects the following:

  • Net sales: A decrease of (4 percent) to a decrease of (6 percent)
  • Comparable sales: A decrease of (3 percent) to a decrease of (5 percent)
  • Operating margin: In the range of 3.4 percent to 3.8 percent
  • Diluted EPS: In the range of $1.75 to $2.25
  • Capital Expenditures: Approximately $500 million, including expansion of the Sephora partnership and other store-related investments

On August 13, 2024, Kohl’s Board of Directors declared a quarterly cash dividend on the company’s common stock of 50 cents per share. The dividend is payable September 25, 2024 to shareholders of record at the close of business on September 11, 2024.

Image courtesy Kohl’s