Kohl's earnings: Profits plunge more than 50% annually on weak sales as consumer angst persists
Consumers have started pulling back their spending — and some retailers are feeling the brunt of it.
Kohl's (KSS) earnings beat in the second quarter, but profits were down 53% compared to a year ago.
Adjusted earnings per share came in at $0.52, above analyst estimates of $0.23 for Q2, according to Bloomberg data. Earnings per share were $1.11 in the same time period a year ago.
Same-store sales decreased 5.0%. That's lower than analysts' estimates for a 4.62% decline. Net sales fell 4.8% to $3.68 billion, slightly lower than estimates for $3.71 billion.
Kohl's Sephora business continued to prove strong though. On a call with investors, CEO Tim Kingsbury, who took the helm back in February, said Sephora at Kohl's is "exceeding" expectations and is "bringing in new customers that are shopping more frequently." Kingsbury added that the Sephora customers are typically "a younger, more diverse consumer."
Inventory also declined 14% compared to a year ago but was short of analyst estimates.
Following the results, Kohl's stock fluctuated premarket and rose 1% in early trading.
The earnings rundown:
Here are Kohl's Q2 results versus estimates, according to Bloomberg data:
Net sales: $3.68 billion versus $3.71 billion expected
Adjusted EPS: $0.52 versus $0.23 expected
Same-store sales: -5% versus -4.62% expected
Gross margin: 39% versus 38.6% expected
Adjusted net income: 58 million versus 27.26 million
Inventories: -14%
What else we're watching: Credit card payments, 2023 outlook
Kohl's is also not immune to the recent rise in credit card debt balances and delinquencies, as Yahoo Finance's Janna Herron reported.
Kohl's CFO Jill Timm said "payment rates [are] down, losses up" — a potential red flag for investors.
"Credit losses did increase over what was obviously a really low year last year," Timm added. "But as anticipated ... we did take early actions as we did anticipate the macroeconomic environment to worsen and people to have less cash in their bank account."
Payment levels are still above 2019 though.
In Q2, the retailer launched a credit card offering with Capital One (COF), which Timm said will "offer a new vehicle to customers who maybe didn't want a private label credit card" in another attempt to win over younger consumers.
For the full year 2023, Kohl's expects a net sales decline of between 2% and 4%. Operating margin is expected to come in at 4% while adjusted earnings per share are expected to be in the range of $2.10 to $2.70.
"Many of our strategic efforts are just underway, which we expect will contribute incrementally in the back half of the year, and even more so in 2024 and beyond," Kingsbury said in the release, adding that the team is "confident in our longer-term opportunity."
In Q2, the company opened 200 Sephora shops and plans to open 50 more this month, bringing to the total to 850. The company is also opening 45 smaller-format, 750-square-foot Sephora shops in the remainder of the chain in October. In total, the chain will boast over 900 stores by the end of 2023.
What analysts were saying post-earnings:
"Like last [quarter], KSS posted another bottom-line beat, driven primarily by better SG&A (though sales/GM were also slightly better than consensus). [Management] also again reaffirmed its annual guidance of $2.10-2.70 vs. consensus of $2.38. While trends are not good on an absolute basis, they do not seem to be getting worse, and inventory is in better shape now (down 14% in 2Q vs down 6% in 1Q). [Management] reaffirmed its commitment to its dividend (a positive considering FL just cut it) and there weren't any alarm bells with its credit biz (like M). We await the call to hear about current trends." - Paul Lejuez, Citi
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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