In a conference call to discuss first-quarter results, apparel and home goods merchant Kohl’s Corp. (No. 21 in the 2022 Digital Commerce 360 Top 1000 ranking) reiterated its commitment to top-priority initiatives. Those include plans to boost its omnichannel capabilities, open 100 smaller-format stores and deepen its store-in-store partnership with cosmetics retailer Sephora. 

Kohl’s did not reveal how Q1 online revenue compared with the comparable quarter last year. But Jill Timm, chief financial officer, told investors during a Thursday conference call that digital sales “slightly outperformed stores and represented 30% of net sales.”

Q1 net sales at Kohl’s were $3.47 billion for the quarter ended April 30, down 5.2% from $3.66 billion a year earlier. That means digital sales were roughly $1.04 billion in Q1 2022.

Kohl’s comparable sales for Q1 also decreased 5.2% year over year, the retailer reported. Comparable sales measure retail sales across stores and other sales channels that existed in the previous reporting period.

In addition, a surge in costs for freight, transportation and wages weighed on profit last quarter, Kohl’s said.

Sales dropped off in April

Timm said Q1 started strong with comparable up by single-digit percentages through late March, but sales then “considerably weakened” in April. She attributed the year-over-year weakening to last year’s federal stimulus payments to households — which boosted demand — and higher inflation compared with a year ago. The retailer said trends in May have “notably improved” with more favorable weather accelerating demand for spring merchandise.

The retailer says it also plans to stay the course on previously announced plans for adding to its omnichannel options.

Those plans include:

• Making self-service in-store pickup available at all stores by the end of 2022
• Piloting self-service returns in 100 stores
• Testing self-service checkout
• Expanding the assortment of products available online
• Enhancing the Kohl’s Media Network

The media network program allows brands to target Kohls.com shoppers online.

During the Thursday call, Kohl’s CEO Michelle Gass said the Kohl’s Media Network is “a multi-hundred-million-dollar opportunity over time.”

A bright spot in Kohl’s quarterly report was that the 200 stores that include Sephora at Kohl’s shops “delivered positive comparable store sales” during Q1, according to a statement. Kohl’s says it plans to add Sephora shops to an additional 400 Kohl’s stores by the end of 2022, meaning more than half of Kohl’s locations will have a Sephora shop by then. The retailer also plans to add 100 smaller-format stores over the next four years.

Credit card users get richer rewards

Earlier in May, Kohl’s enhanced its rewards program so shoppers using the retailer’s credit card earn 7.5% in rewards on every purchase. Previously, all Kohl’s Rewards members would earn 5% Kohl’s Rewards, regardless of payment method.

After piloting the enhanced benefits in more than 100 stores across eight markets, Kohl’s changed the program nationwide. In the pilot markets, Kohl’s saw an increase in the rewards program’s enrollments, more Kohl’s Card acquisitions and usage, and an overall sales lift, the retailer reported.

The Kohl’s board explores bids

Kohl’s is under pressure to show improvement after management last week fended off an activist investor’s two-year push to overhaul the board. The retailer said Thursday that Goldman Sachs, its adviser, has engaged with more than 25 parties as it continues to review strategic alternatives.

“Multiple bidders have been invited to a data room containing over 550,000 pages across over 55,000 documents, as well as meetings with management. While preliminary, non-binding proposals have been received, further diligence is ongoing, and the board has requested fully financed final bids to be submitted in the coming weeks,” a Kohl’s statement said.

Mall operators Simon Property Group and Brookfield Asset Management offered to buy retailer Kohl’s in a deal that would be worth more than $8.6 billion, according to an April 25 report in the New York Post.

Simon and Brookfield, which bought rival department-store chain JCPenney out of bankruptcy, have offered $68 a share, the Post reported. One unnamed source told The Post the buyout plan calls for maintaining two separate brands while creating a single management team, streamlining operations and cutting costs.

Outlook adjustments

Kohl’s updated its full-year 2022 financial outlook:

• Net sales gains are now expected to be in the range of 0% to 1% compared to the previous year. In March, Kohl’s forecast an increase of 2% to 3% year over year.
• The operating margin is now expected to be in the range of 7.0% to 7.2%, down from the previous forecast of 7.2% to 7.5%.
• Earnings per share are now expected to be in the range of $6.45 to $6.85, excluding any non-recurring charges. The March forecast was $7.00 to $7.50, excluding any non-recurring charges.

Kohl’s sells online at Kohls.com and operates more than 1,100 stores in 49 states.

For the quarter ending April 30, Kohl’s reported:

• Net sales of $3.47 billion for the quarter, down 5.2% from $3.66 billion a year earlier.
• Total revenue of $3.72 billion, down 4.4% from $3.89 billion in the year-ago quarter.
• Selling and administrative expenses of $1.29 billion, up 10.5% compared with $1l17 billion in Q1 2021.

Percentage changes may not align exactly with dollar figures due to rounding.

Paul Conley and Bloomberg News contributed to this report.

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