Shares of Kohl’s plunged as much as 26% on Thursday after the department store chain reported an unexpected quarterly loss due to weakening consumer demand, particularly from the inflation-hit middle class.
The Wisconsin-based company lowered its full-year sales and profit forecasts as consumers continue to prioritize buying essentials over discretionary products such as clothing, electronics and household goods amid a dwindling pandemic-era savings.
Kohl’s Chief Executive Officer Tom Kingsbury said on a conference call after the earnings announcement that discretionary spending among middle-income customers remains pressured by a number of economic factors, including high interest rates and inflation, but remains stable among higher-income customers.
Kohl’s, which operates more than 1,100 stores across the U.S. and has a retail partnership with LVMH-owned beauty products retailer Sephora, said its net sales for the quarter ended May 4 fell 5.3% from the same period a year ago.
The company now expects net sales for fiscal 2024 to decline 2% to 4%, down from its previous forecast of a 1% decrease to 1% increase.
Kohl’s plunged more than 26% after the earnings report, hitting its lowest level since November, before closing down 23% to $21.02 a share.
The department store chain’s quarterly results contrast with those of other retailers such as Abercrombie. report Sales were strong in the first quarter as products became more on-trend.
“Kohl’s has become overly reliant on driving traffic to other brands like Sephora, Amazon and now Babies R Us rather than highlighting its own core brand identity,” said Zach Stamber, senior analyst at eMarketer.
Shoppers will be willing to spend money if they see value in a trendy, well-tailored dress from Abercrombie or a healthy salad from Sweetgreen, he added.
Kohl’s also said lower clearance sales compared to last year dragged down its same-store sales, which fell 4.4 percent in the first quarter, by more than 600 basis points.
Since 2019, the retailer’s sales have fallen 16.8%, leading to a revenue loss of $643 million. According to the Wall Street Journal.
Over the past five years, Kohl’s is estimated to have lost approximately 1.5 million customers.
Kohl’s posted a loss of $27 million last quarter. Last year, it reported a profit of $14 million.
Neil Saunders of research firm GlobalData told The Wall Street Journal that Kohl’s isn’t generating enough cash to cover interest payments on its debt, meaning the company doesn’t have enough capital to upgrade its stores.
Earlier this year, an activist hedge fund chaired by former Canadian prime minister Stephen Harper pressured Coles to sell.
Vision One Management Partners, a fund co-founded by Harper and Courtney Mather, a former chairman of Carl Icahn, bought a stake in Kohl’s and expressed concerns about the company’s future, people familiar with the matter told Reuters in February.
Other activist shareholders have pressured Kohl’s in recent years to consider a sale after the company rejected a high takeover bid of $64 a share in 2022 after not receiving offers that were as high as the $70 or more a share it wanted.
Since then, retailers have struggled to make their stores more profitable and expand their e-commerce businesses.
Ancora Holdings, Macellum Capital Management and Legion Partners Asset Management are also among the activist hedge funds that have been calling for reforms at Kohl’s.
Kingsbury joined Kohl’s board of directors in 2021 with the support of Macellam and Ancora.
He will succeed Michelle Gass, who will leave the company in 2022 and take over as CEO of jeans maker Levi Strauss & Co. last year.
Department store rival Macy’s has also been a target of activist investors, and earlier this year it rejected a $5.8 billion take-private offer from investors Arkhouse Management and Brigade Capital Management.
Macy’s argued that the offer was too low and lacked the necessary financing.
With post wire
