Kohl’s, Inc. reported a steep loss in the fourth quarter on heavy markdowns. Wall Street had expected a profit. The mid-tier department store chain also guided EPS for the current year below analyst targets.

The loss in the quarter ended January 28 came to $2.49 a share compared to analysts’ consensus estimate calling for a profit of 98 cents a share. Sales of $5.8 billion compared with Wall Street’s consensus estimate of $5.98 billion.

For 2023, Kohl’s said it expects earnings in the range of $2.10 to $2.70 versus the $3.20 consensus.

Tom Kingsbury, Kohl’s chief executive officer, said, “Kohl’s fourth quarter results reflect meaningful proactive measures we took to better position the business for 2023, as well as sales pressure driven by the ongoing persistent inflationary environment. Kohl’s has a solid foundation and a highly motivated team with a set of priorities to capitalize on what I see as a substantial opportunity to make a difference in the retail landscape.”

Kingsbury continued, “Our efforts to drive the business are already underway. We are refining our strategy and re-establishing merchandise disciplines with a customer-centric focus across the organization. I am confident that our efforts will drive improved, and more consistent, sales and earnings performance over the long-term.”

Fourth Quarter 2022 Results
Comparisons refer to the 13-week period ended January 28, 2023 versus the 13-week period ended January 29, 2022

  • Net sales decreased 7.2 percent year-over-year, to $5.8 billion, with comparable sales down 6.6 percent;
  • Gross margin as a percentage of net sales was 23.0 percent, a decrease of 1,016 basis points. Clearance markdowns impacted margin by approximately 750 basis points and product cost inflation impacted margin by approximately 200 bps;
  • SG&A expenses decreased 0.6 percent year-over-year, to $1.7 billion. As a percentage of total revenue, SG&A expenses were 27.9 percent, an increase of 190 basis points year-over-year;
  • Operating loss was $302 million compared to operating income of $450 million in the prior year. As a percentage of total revenue, operating loss was 5.0 percent, a decrease of 1,195 basis points year-over-year;
  • Net loss was $273 million, or ($2.49) per diluted share; this compares to net income of $299 million, or $2.20 per diluted share in the prior year;
  • Inventory was $3.2 billion, an increase of 4 percent year-over-year; and
  • Operating cash flow was $707 million driven by improvements in working capital during the fourth quarter of 2022.

Fiscal Year 2022 Results
Comparisons refer to the 52-week period ended January 28, 2023 versus the 52-week period ended January 29, 2022

  • Net sales decreased 7.1 percent year-over-year, to $17.2 billion, with comparable sales down 6.6 percent;
  • Gross margin as a percentage of net sales was 33.2 percent, a decrease of 485 basis points;
  • SG&A expenses increased 2.0 percent year-over-year, to $5.6 billion. As a percentage of total revenue, SG&A expense was 30.9 percent, an increase of 268 basis points year-over-year;
  • Operating income was $246 million compared to $1.7 billion in the prior year. As a percentage of total revenue, operating income was 1.4 percent, a decrease of 729 basis points year-over-year;
  • Net loss of $19 million, or ($0.15) per diluted share. This compares to a net income of $938 million, or $6.32 per diluted share, and an adjusted net income of $1.1 billion, or $7.33 per diluted share, in the prior year; and
  • Operating cash flow was $282 million.

2023 Financial and Capital Allocation Outlook
For the full year 2023, the company currently expects the following:

  • Net sales: A decrease of (2 percent) to (4 percent), including the impact of the 53rd week which is worth approximately 1 percent year-over-year.
  • Operating margin: Approximately 4.0 percent.
  • Diluted earnings per share:  In the range of $2.10 to $2.70, excluding any non-recurring charges.
  • Capital Expenditures: $600 million to $650 million, including expansion of its Sephora partnership and store refresh activity.
  • Dividend: On February 21, 2023, Kohl’s Board of Directors declared a quarterly cash dividend on the company’s common stock of $0.50 per share. The dividend is payable March 29, 2023 to shareholders of record at the close of business on March 15, 2023.
  • Debt Reduction: The company retired $164 million of bonds that matured in February 2023, and expects to retire $111 million of bonds maturing in December 2023.

Photo courtesy Kohl’s