Kohl's Reports First Quarter Fiscal 2024 Financial Results

Rhea-AI Summary

Kohl's (NYSE: KSS) reported its first-quarter fiscal 2024 financial results, ending May 4, 2024, with a net sales decrease of 5.3% to $3.2 billion and a comparable sales decline of 4.4%. Regular price sales rose 2.4%, but clearance sales negatively impacted overall comparable sales by 600 basis points. The gross margin increased by 48 basis points to 39.5%. The company recorded a diluted loss per share of $0.24, compared to a net income of $0.13 per share in the prior year. Inventory levels were down 13% year-over-year. Kohl's updated its financial outlook for full-year 2024, expecting net sales to decrease between 2% and 4%, with diluted EPS projected to range from $1.25 to $1.85.

The company is committed to returning capital to shareholders via a $0.50 per share dividend, payable on June 26, 2024. Despite the first quarter's underperformance, CEO Tom Kingsbury expressed confidence in strategic initiatives, including partnerships with Sephora and Babies 'R' Us.

Positive

• Gross margin increased by 48 basis points to 39.5%.
• Inventory declined by 13% year-over-year.
• Regular price sales increased by 2.4%.
• Operating cash flow improved to a use of $7 million from a use of $202 million in the prior year.
• Selling, general & administrative (SG&A) expenses decreased by 0.8% year-over-year.
• Kohl's declared a quarterly cash dividend of $0.50 per share, payable on June 26, 2024.
• Long-term debt reduction planned for 2024, including redeeming $113 million of 9.500% notes due May 2025.

Negative

• Net sales decreased by 5.3% year-over-year to $3.2 billion.
• Comparable sales decreased by 4.4%.
• Diluted loss per share of $0.24, compared to a net income of $0.13 per share in the prior year.
• Operating income decreased to $43 million from $98 million in the prior year, a drop of 148 basis points year-over-year.
• SG&A expenses increased as a percentage of total revenue by 166 basis points year-over-year.
• Net loss of $27 million compared to net income of $14 million in the prior year.
• Updated guidance projects a net sales decrease between 2% and 4% for full-year 2024.
• Projected diluted EPS for full-year 2024 ranges from $1.25 to $1.85, indicating lower profitability.

Insights

Financial Analyst

Kohl’s recent financial results indicate a challenging first quarter for the retailer. The 5.3% decrease in net sales and a 4.4% drop in comparable sales reflect broader retail sector challenges. Although regular price sales increased by 2.4%, the significant impact of lower clearance sales shows a strategic shift that might not be resonating well with consumers.

From a financial perspective, the decrease in inventory by 13% is a positive move. Lower inventory levels can reduce holding costs and improve cash flow. Additionally, the 48 basis points increase in gross margin suggests better cost management and pricing strategies. However, the overall $27 million net loss, or ($0.24) per diluted share, raises concerns about the profitability challenges Kohl’s is currently facing.

Despite the decrease in SG&A expenses by 0.8%, the increase in these expenses as a percentage of revenue to 36.3% signals inefficiencies that need to be addressed. Furthermore, the updated financial outlook for 2024, with an expected net sales decrease between 2% and 4%, suggests continued headwinds. While focusing on strategic initiatives like the Sephora partnership and debt reduction is commendable, the conservative outlook points to an uncertain consumer environment which might continue to affect performance.

The guidance for a diluted EPS range of $1.25 to $1.85 for the full year also reflects uncertainty. Investors should keep an eye on how these strategic initiatives unfold, particularly the expansion of Sephora and whether they can offset the broader sales decline.

Market Research Analyst

For a retail investor, understanding Kohl's current positioning and future potential is key. The decline in net and comparable sales, though concerning, is somewhat tempered by the increase in regular price sales and gross margin. These indicators suggest that while Kohl’s is struggling to attract customers through clearance sales, it is seeing some success in selling at regular prices, which could mean higher profitability per unit sold, albeit at lower volumes.

This strategic shift prioritizes higher-margin sales, which could stabilize earnings if customer traffic improves. The 13% reduction in inventory is encouraging as it shows that Kohl’s is managing its merchandise more efficiently, potentially avoiding markdowns and inventory write-offs.

Additionally, the focus on strategic partnerships, such as the expanding Sephora presence, offers a unique growth avenue. Sephora's inclusion in Kohl's stores can attract a different customer demographic, thereby lifting overall store traffic and sales. Investors should watch for the performance metrics of these Sephora in-store shops, as their success will be important in offsetting the broader decline in sales.

The reduction in long-term debt, including redeeming $113 million of notes due in 2025, is a prudent move to strengthen the balance sheet, reduce interest expenses and improve financial stability. Aligning these actions with a conservative financial outlook indicates Kohl’s cautious approach amidst ongoing market uncertainties.

MENOMONEE FALLS, Wis.--(BUSINESS WIRE)-- Kohl’s Corporation (NYSE:KSS) today reported results for the first quarter ended May 4, 2024.

• Net sales decreased 5.3% and comparable sales decreased 4.4%
• Regular price sales increased 2.4% with clearance impacting overall comp by more than 600 basis points
• Gross margin increased 48 basis points
• Diluted loss per share of $0.24
• Inventory declined 13%
• Updates full year 2024 financial outlook
• Committed to returning capital to shareholders through the dividend and further strengthening balance sheet through long-term debt reduction in 2024

Tom Kingsbury, Kohl’s chief executive officer, said, “Our first quarter results did not meet our expectations and are not reflective of the direction we are heading with our strategic initiatives. Regular price sales increased year-over-year, with early success in underpenetrated categories, positive trends in our Women’s business, and continued strong growth in Sephora. However, lower clearance sales versus last year represented a more than 600 basis point drag on comparable sales. Importantly, we were able to deliver gross margin expansion, manage inventory down 13% and tightly control expenses in the quarter.”

“We continue to have high conviction in our strategy and believe that our key growth initiatives, including Sephora, home decor, gifting, impulse, and our upcoming partnership with Babies “R” Us, will contribute more meaningfully going forward. That said, we recognize we have more work to do in areas of our business. We are approaching our financial outlook for the year more conservatively given the first quarter underperformance and the ongoing uncertainty in the consumer environment,” Kingsbury continued.

First Quarter 2024 Results

Comparisons refer to the 13-week period ended May 4, 2024 versus the 13-week period ended April 29, 2023

• Net sales decreased 5.3% year-over-year, to $3.2 billion, with comparable sales down 4.4%
• Gross margin as a percentage of net sales was 39.5%, an increase of 48 basis points.
• Selling, general & administrative (SG&A) expenses decreased 0.8% year-over-year, to $1.2 billion. As a percentage of total revenue, SG&A expenses were 36.3%, an increase of 166 basis points year-over-year.
• Operating income was $43 million compared to $98 million in the prior year. As a percentage of total revenue, operating income was 1.3%, a decrease of 148 basis points year-over-year.
• Net loss was $27 million, or ($0.24) per diluted share. This compares to net income of $14 million, or $0.13 per diluted share in the prior year.
• Inventory was $3.1 billion, a decrease of 13% year-over-year.
• Operating cash flow was a use of $7 million as compared to a use of $202 million in the prior year.

Updated 2024 Financial and Capital Allocation Outlook

For the full year 2024, which has 52 weeks compared to 53 weeks in full year 2023, the Company’s guidance includes the potential impact from credit card late fee regulatory changes in the second half of 2024. The Company currently expects the following:

• Net sales: A decrease of (2%) to a decrease of (4%)
• Comparable sales: A decrease of (1%) to a decrease of (3%)
• Operating margin: In the range of 3.0% to 3.5%
• Diluted EPS: In the range of $1.25 to $1.85
• Capital Expenditures: Approximately $500 million, including expansion of Sephora partnership and other store-related investments
• Dividend: On May 15, 2024, 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 June 26, 2024 to shareholders of record at the close of business on June 12, 2024.
• Debt Reduction: Earlier this month we exercised our right to redeem the remaining $113 million of our 9.500% notes due May 15, 2025. The redemption will be completed on June 13, 2024.

First Quarter 2024 Earnings Conference Call

Kohl’s will host its quarterly earnings conference call at 9:00 am ET on May 30, 2024. A webcast of the conference call and the related presentation materials will be available via the Company's web site at investors.kohls.com, both live and after the call.

Cautionary Statement Regarding Forward-Looking Information

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Company intends forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “anticipates,” “plans,” or similar expressions to identify forward-looking statements. Forward-looking statements include the information under “Updated 2024 Financial and Capital Allocation Outlook.” Such statements are subject to certain risks and uncertainties, which could cause the Company's actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include, but are not limited to, risks described more fully in Item 1A in the Company’s Annual Report on Form 10-K, which are expressly incorporated herein by reference, and other factors as may periodically be described in the Company’s filings with the SEC. Forward-looking statements relate to the date initially made, and the Company undertakes no obligation to update them.

About Kohl's

Kohl’s (NYSE: KSS) is a leading omnichannel retailer built on a foundation that combines great brands, incredible value and convenience for our customers. Kohl's serves millions of families in our more than 1,100 stores in 49 states, online at Kohls.com, and through our Kohl's App. For a list of store locations or to shop online, visit Kohls.com. For more information about Kohl’s impact in the community or how to join our winning team, visit Corporate.Kohls.com.

KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	Three Months Ended
(Dollars in Millions, Except per Share Data)	May 4, 2024			April 29, 2023
Net sales	$	3,178		$	3,355
Other revenue		204			216
Total revenue		3,382			3,571
Cost of merchandise sold		1,923			2,047
Gross margin rate		39.5	%		39.0	%
Operating expenses:
Selling, general, and administrative		1,228			1,238
As a percent of total revenue		36.3	%		34.7	%
Depreciation and amortization		188			188
Operating income		43			98
Interest expense, net		83			84
(Loss) income before income taxes		(40	)		14
(Benefit) provision for income taxes		(13	)		—
Net (loss) income	$	(27	)	$	14
Average number of shares:
Basic		111			110
Diluted		111			111
(Loss) earnings per share:
Basic	$	(0.24	)	$	0.13
Diluted	$	(0.24	)	$	0.13

KOHL’S CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Millions)	May 4, 2024		April 29, 2023
Assets
Current assets:
Cash and cash equivalents	$	228	$	286
Merchandise inventories		3,083		3,526
Other		345		347
Total current assets		3,656		4,159
Property and equipment, net		7,664		7,803
Operating leases		2,498		2,368
Other assets		460		380
Total assets	$	14,278	$	14,710
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,220	$	1,310
Accrued liabilities		1,265		1,164
Borrowings under revolving credit facility		355		765
Current portion of:
Long-term debt		—		111
Finance leases and financing obligations		81		93
Operating leases		92		111
Total current liabilities		3,013		3,554
Long-term debt		1,638		1,637
Finance leases and financing obligations		2,651		2,710
Operating leases		2,783		2,634
Deferred income taxes		94		129
Other long-term liabilities		286		326
Shareholders’ equity:		3,813		3,720
Total liabilities and shareholders’ equity	$	14,278	$	14,710

KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Three Months Ended
(Dollars in Millions)	May 4, 2024			April 29, 2023
Operating activities
Net (loss) income	$	(27	)	$	14
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		188			188
Share-based compensation		10			9
Deferred income taxes		(13	)		1
Non-cash lease expense		22			25
Other non-cash items		3			(4	)
Changes in operating assets and liabilities:
Merchandise inventories		(202	)		(336	)
Other current and long-term assets		(81	)		49
Accounts payable		86			(20	)
Accrued and other long-term liabilities		34			(101	)
Operating lease liabilities		(27	)		(27	)
Net cash used in operating activities		(7	)		(202	)
Investing activities
Acquisition of property and equipment		(126	)		(94	)
Proceeds from sale of real estate		—			1
Other		—			(1	)
Net cash used in investing activities		(126	)		(94	)
Financing activities
Net borrowings under revolving credit facility		263			680
Shares withheld for taxes on vested restricted shares		(9	)		(12	)
Dividends paid		(55	)		(55	)
Repayment of long-term borrowings		—			(164	)
Finance lease and financing obligation payments		(21	)		(25	)
Proceeds from financing obligations		—			5
Net cash provided by financing activities		178			429
Net increase in cash and cash equivalents		45			133
Cash and cash equivalents at beginning of period		183			153
Cash and cash equivalents at end of period	$	228		$	286

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240530628329/en/

Investor Relations:

Mark Rupe, (262) 703-1266, mark.rupe@kohls.com

Media:

Jen Johnson, (262) 703-5241, jen.johnson@kohls.com

Source: Kohl’s

FAQ

What were Kohl's first-quarter 2024 financial results?

Kohl's reported a 5.3% decrease in net sales to $3.2 billion and a comparable sales decline of 4.4%. The company posted a diluted loss per share of $0.24.

How did Kohl's gross margin perform in Q1 2024?

Kohl's gross margin increased by 48 basis points to 39.5% in the first quarter of 2024.

What was Kohl's inventory change in Q1 2024?

Kohl's inventory declined by 13% year-over-year in the first quarter of 2024.

What is Kohl's updated 2024 financial outlook?

Kohl's expects a net sales decrease between 2% and 4%, and diluted EPS ranging from $1.25 to $1.85 for full-year 2024.

What dividend did Kohl's declare for Q1 2024?

Kohl's declared a quarterly cash dividend of $0.50 per share, payable on June 26, 2024.

What were the key reasons for Kohl's sales decline in Q1 2024?

Lower clearance sales negatively impacted overall comparable sales by more than 600 basis points in Q1 2024.

How did Kohl's manage operating cash flow in Q1 2024?

Kohl's improved operating cash flow to a use of $7 million from a use of $202 million in the prior year.

What are Kohl's strategic initiatives for growth in 2024?

Kohl's growth initiatives include partnerships with Sephora, home decor, gifting, impulse, and an upcoming partnership with Babies 'R' Us.