Kohl’s third-quarter results miss analysts’ estimates as sales weaken

Kohl’s third-quarter results miss analysts’ estimates as sales weaken

Investors hammered Kohl’s Corp. Thursday after the retailer reported disappointing third-quarter results, with earnings down 18% and sales lower on both an overall and same-store basis.

Shares in the Menomonee Falls-based company fell 8.1%, closing at $53.55, on nearly six times the average volume.

Kohl’s took in $4.44 billion in revenue during the three months ended Nov. 2, down from $4.49 billion a year ago, a 1% decline.

More seriously, sales at stores open at least a year, a key measure of retailing performance, fell 1.6%. The primary problem: not enough shoppers walking into the chain’s 1,158 stores.

“It’s primarily all about traffic,” CEO Kevin Mansell told analysts on a conference call Thursday morning. “(We) didn’t drive good traffic consistently throughout the quarter.

“Let’s be clear,” he said. “We were disappointed in the third-quarter results.”

Kohl’s earned $177 million, compared with $215 million in the third quarter of 2012. Per-share earnings came to 81 cents, 5 cents short of analysts’ expectations and a dime below last year’s performance.

The results were the latest in a series of stumbles for Kohl’s over the last two years — sluggish holiday sales in 2011, not enough merchandise in key categories in early 2012, and too much last fall, leading to massive markdowns.

Wrestling with the difficulties, Kohl’s has shaken up its merchandising team, brought in former Starbucks executive Michelle Gass to fill a key leadership role in marketing and e-commerce, and moved to generate more foot traffic by bolstering its national brands.

It all remains, however, a work in progress.

“Every time they seem to get going, then the next quarter they give back — both the stock and the operating results,” Morningstar Inc. analyst Paul Swinand said. “Last quarter it looked like they’re guiding to a positive, (that) they’ve finally got things turned around, then boom, another negative quarter.”

In a research note published Thursday, Credit Suisse analyst Michael Exstein cited “the continuing challenges ahead of the company” and said the latest quarterly performance suggests “that merchandise relevance to the customer is still not where it needs to be, which is key to the long-term health of the organization.”

While Kohl’s has faced problems, however, the effects on the retailer of the overall economy shouldn’t be underestimated, Swinand said. The recession and the agonizingly slow recovery have squeezed the middle-class consumers who represent Kohl’s customer base, Swinand said, but the macro situation eventually will improve.

“It’s got to turn around at some point,” he said.

John Collopy, research director for Oshkosh brokerage firm Carl M. Hennig Inc., took a similar view.

“The bottom line is they cannot overcome the macro malaise in the economy right now,” he said. “I think that’s really the driving force here.”

At the heart of Kohl’s efforts to recapture some of the magic that made the firm a retailing standout in the ’90s and early 2000s are a still-being-tested loyalty program and renewed attention to national brands. Both measures aim to boost traffic.

“Getting more customers in the door has consistently been the challenge, and we know that’s where our attention’s got to go,” Mansell told analysts.

The Kohl’s Rewards loyalty program, which gives members $5 off future purchases for every $100 they spend, plus special savings offers, has lifted sales in test markets in Texas, California and Pittsburgh.

Meanwhile, Kohl’s is “working with a sense of urgency” to identify appropriate national brands and secure deals to sell them, Mansell said.

While the typically less expensive house merchandise carries more profit, national brands such as Levi’s or Nike are more appealing to new customers — the bodies Kohl’s needs to attract.

Thursday, the company announced it will add two more such brands next fall — Izod, the long-established men’s clothing line; and the Juicy Couture assortment of women’s and girl’s apparel, fashion accessories and home goods. They won’t be the last, Mansell indicated.

“I would expect to have new brands consistently,” he said.

Also in store are new approaches to reaching potential customers, in part through what Mansell termed “breakthrough kind of advertising.”

As part of that initiative, Kohl’s will present the new artist of the year on the American Music Awards show Nov. 24, and will air commercials during National Football League games on Thanksgiving Day.

, ,