Kohl slashes rebates after unexpected loss in fourth quarter

Kohl plans to cut inventory by about 5% this year, be more cautious with discounts and change the way its products are displayed to entice shoppers to buy after the department store chain reported big losses and falling sales in the fourth quarter.

The Menomonee Falls, Wisconsin-based retailer also posted a full-year profit forecast that came in below Wall Street’s expectations as the company struggles with shoppers cutting back on discretionary items amid persistently high inflation.

Shares fell 10% before the open on Wednesday but recouped some of those losses after Kohl executives detailed plans to revitalize their business.

In a conference call with analysts, newly appointed CEO Tom Kingsbury said Kohl’s is making headway in beauty through a partnership with Sephora, whose beauty salons opened in 2021 and are expanding across the chain.

However, he acknowledged that the department store chain has lost ground in other key categories.

“Honestly, I know we can do better,” Kingsbury said.

A number of major retailers, including Target, Walmart and Home Depot, have released weaker financial guidance for 2023 in a difficult economic environment for Americans.

But Kohl’s, which has been pressured by shareholders to revive sales, has been hit particularly hard because it relies heavily on sales of items like clothing and caters to middle-income shoppers more vulnerable to rising prices.

However, industry analysts believe that Kohl’s has made serious mistakes.

Neil Saunders, managing director of GlobalData Retail, said the stores had become filthy and unattractive to shoppers.

“During the holidays, stores should be inspiring and uplifting, encouraging consumers to shop,” Saunders said. “Unfortunately, Kohl’s was the exact opposite with dirty merchandise, poor lighting and uncoordinated merchandise making for a depressing and confusing experience. Unfortunately, this problem gets worse over time, and it’s one of the first things a new executive team has to tackle if they want to stop the rot. ”

The disappointing performance highlights the headwind facing Kingsbury. Kingsbury, who has been acting CEO, was named permanent CEO last month.

Board member Kohl has been replaced by Michelle Gass, who was appointed president of Levi Strauss & Co late last year.

Kohl’s announced Tuesday that 30-year retail veteran Dave Alves will become Kohl’s president and chief operating officer in April, reporting to Kingsbury.

Kohl’s is cutting its number of general product managers by almost half, from four to seven, in hopes of making the company more agile.

The company also pays close attention to inventory levels. Last year, retailers including Kohl’s had to slash prices as Americans shifted their spending away from clothing to parties, travel or, due to inflation, essentials such as groceries.

Kohl’s inventory rose 48% year-over-year at the end of the second quarter and 34% at the end of the third. Inventories rose 4% by the end of the year, the company said.

Kohl’s said it will be more targeted with sales rather than discounts across the board. He will also lower his target prices, rather than at the end of the sales period, to be able to constantly update his item.

Kohl’s posted a loss of $273 million, or $2.49 per share, for the quarter ended Jan. 28. According to a survey conducted by FactSet, industry analysts had forecast earnings per share of 97 cents.

Last year over the same period, the company earned $299 million, or $2.20 per share.

Sales fell just over 7% to $6.02 billion. Like-for-like sales—stores open for at least a year and online channels—fell 6.6%.

The company said it expects net sales to decline anywhere from 2% to 4% for the year. He also expects earnings to be between $2.10 and $2.70 per share, excluding one-time expenses during the year. Analysts were expecting $3.17 per share.

Kohl’s shares fell 2% in mid-trade on Wednesday.