Kohl’s, Inc. cut its full-year forecast due to plans to increase promotional activity to reduce inventory levels.  The department store chain reported second-quarter results slightly ahead of expectations but indicated a weakening economy and high inflation are weighing on sales growth.

In the quarter ended July 30, sales were down 8.1 percent to $4.08 billion, just above Wall Street’s consensus estimate of $3.95 billion. Second quarter comparable sales decreased by 7.7 percent.
Gross margin declined 290 basis points to 39.6 percent. SG&A expenses grew 3.4 percent to $1.28 billion from $1.24 billion.
Net income fell 63 percent to $143 million, or $1.11 a share, from $382 million, or $2.48, a year ago.  Wall Street’s consensus estimate had been $1.08.

“Second quarter results were impacted by a weakening macro environment, high inflation and dampened consumer spending, which especially pressured our middle-income customers. We have adjusted our plans, implementing actions to reduce inventory and lower expenses to account for a softer demand outlook. Kohl’s has navigated difficult periods in the past and I am confident in our ability to successfully manage through the current uncertainty. I want to thank our incredible associates around the country for their commitment to Kohl’s and for providing excellent service to our customers every day. We continue to execute on our transformation strategy and are pleased to deliver outsized performance in the nearly 600 stores which have been refreshed and elevated, featuring Sephora as a key cornerstone,” said Michelle Gass, Kohl’s chief executive officer.

“While 2022 has turned out to be more challenging than initially expected, Kohl’s remains a financially strong company with significant long-term growth potential. Our $500 million accelerated share repurchase underscores our steadfast confidence in Kohl’s future and focus on creating shareholder value. We also remain firmly committed to our current dividend,” said Gass.

Updated 2022 Financial Outlook
The company is updating its full-year 2022 financial outlook to include the following:

  • Net sales are now expected to decline in the range of 5 percent to 6 percent as compared to the prior year;
  • Operating margin is now expected to be in the range of 4.2 percent to 4.5 percent; and
  • Earnings per share are now expected to be in the range of $2.80 to $3.20, excluding any non-recurring charges.

Previously, Kohl’s expected sales in the range of 0 percent to 1 percent, operating margin in the range of 7.0 percent to 7.2 percent and EPS in the range of $6.45 to $6.85.

Accelerated Share Repurchase Agreement
On August 18, 2022, the company entered into an accelerated share repurchase agreement (ASR), pursuant to its previously announced share repurchase program, to repurchase approximately $500 million of the company’s common stock.

Dividend
As previously announced, on August 9, 2022, 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 on September 21, 2022 to shareholders of record at the close of business on September 7, 2022.