KSS tumbles 18% as profit, comps miss expectations
2min read Kohl’s delivered mixed Q3 FY24 results, falling short of consensus expectations on earnings but hitting revenue estimates. Adjusted EPS came in at $0.20, below the $0.30 consensus estimate and a significant drop from $0.53 in the prior year. Net sales were $3.51 billion, down 8.8% year-over-year and in line with forecasts of $3.51 billion. Comparable sales declined 9.3%, worse than the expected 5.5% decline, reflecting ongoing weakness in the company’s core apparel and footwear categories.
Key metrics revealed gross margin expansion of 20 basis points to 39.1%, driven by improved inventory management and lower freight costs, but this was offset by higher promotional activity and increased digital penetration. SG&A expenses decreased 5.1% year-over-year to $1.3 billion, reflecting better expense control, but rose as a percentage of revenue due to the sharp sales decline. Inventory levels fell 3.3% year-over-year to $4.1 billion, indicating progress in managing stock levels amid soft demand.
Management lowered FY24 guidance across the board, highlighting the challenges ahead. Comparable sales are now expected to decline 6%-7% compared to the previous outlook of 3%-5%. Net sales are projected to fall 7%-8%, down from prior guidance of a 4%-6% decline. EPS guidance was significantly reduced to $1.20-$1.50, down from $1.75-$2.25, reflecting management’s cautious outlook for the holiday season and the competitive retail environment.
CEO Tom Kingsbury acknowledged the underperformance, citing steep declines in apparel and footwear sales during the back-to-school season, which were only partially offset by strength in Sephora, home décor, gifting, and the newly launched Babies “R” Us shops. While Kingsbury noted aggressive actions to reverse sales declines, such as heightened promotions, these efforts could erode the gross margin gains made during Q3.
In a major leadership development, Kohl’s announced that Ashley Buchanan, CEO of Michaels Companies, will succeed Kingsbury as CEO, effective January 15, 2025. Buchanan brings extensive experience from Walmart and Sam’s Club, and his appointment signals Kohl’s intention to bring fresh strategic direction amid prolonged sales challenges. Kingsbury will remain in an advisory role until his retirement in May 2025.
The market reacted sharply to the results and guidance, with Kohl’s shares falling 12% premarket. The steep drop reflects investor concerns over the company’s ability to stabilize sales and navigate a highly promotional holiday season. While the expansion of partnerships like Sephora and the launch of Babies “R” Us shops offer long-term potential, core categories like apparel and footwear must improve to drive sustainable growth.
Despite the challenges, Kohl’s managed to reduce long-term debt by $113 million and returned $339 million to shareholders through dividends and share repurchases during the quarter. The company’s efforts to optimize inventory and control expenses demonstrate operational discipline, though they have not been enough to offset weak sales trends.
In summary, Kohl’s Q3 results highlight significant headwinds in its core business, underscored by lower guidance and ongoing struggles in apparel and footwear. The CEO transition offers hope for a turnaround, but near-term challenges, including a competitive holiday environment, could weigh on performance. Investors will closely monitor Buchanan’s strategy as Kohl’s attempts to regain momentum in FY25.