With inflation rampant, American consumers are finding it increasingly difficult to find deals at department stores. That’s why Kohl’s, one of the nation’s largest retail clothing chains, announced yesterday that it would cut the prices of many of its products from 20% to 50%. The move, which will affect all of the chain’s nearly 1,000 locations, came in response to sluggish sales and may cause competitors like JC Penney and Macy’s to cut their own prices as well.
Kohl’s again reduced its financial outlook for the year on Thursday, blaming sales declines on middle-class consumers who have been disproportionately affected by increasing prices.
Shoppers are reportedly making fewer trips to the stores, paying less each transaction, and favouring Kohl’s less priced private brands more.
In a statement, the company’s chief executive officer Michelle Gass stated that in response to “a lower demand picture,” the company is altering its business strategies, reducing inventory, and cutting costs.
Even though Kohl’s exceeded analysts’ lower forecasts for its fiscal second-quarter earnings and revenue, shares of Kohl’s dipped in premarket trade because investors were more concerned about future outlook.
Rather of expecting net sales to be flat to up 1% from the preceding year’s levels, Kohl’s now expects them to decline by 5% to 6% in the upcoming fiscal year. In addition, it has revised its prior expectation from $6.45 to $6.85 to $2.80 to $3.20 for adjusted profits per share.
The gloomy outlook from Kohl’s comes after the firm ended negotiations to sell the business to Franchise Group, owner of The Vitamin Shoppe, in late June because the retail climate worsened during the bidding process. Activist investors have been putting pressure on Gass and her colleagues for months to look into selling the business.
At the time, Kohl’s cited a challenging financial and retail climate as barriers to coming to a “acceptable and fully executable deal.”
The Kohl’s news also comes during the same week that Walmart and Target both reaffirmed their full-year predictions despite the strain on their revenues.
According to Walmart, it noticed an increase in the number of higher- and middle-income customers coming into its stores in quest of deals, which benefited its overall performance. However, Target’s efforts to get rid of surplus inventory before the holiday season at significant markdowns hurt its revenues.
Due to fewer sales, Kohl’s inventory levels became 48% larger in the most recent quarter compared to the same period last year. The business said that this growth was the result of its most recent investments in the beauty industry for its collaboration with Sephora and its plan to pack and store more items.
In its fiscal second quarter, which concluded on July 30, Kohl’s performed as follows in comparison to analyst expectations based on Refinitiv estimates:
$1.11 adjusted earnings per share vs $1.03 anticipated
Revenue: $4.09 billion vs the anticipated $3.85 billion
For the three months that ended on July 30, Kohl’s net income dropped dramatically from $382 million, or $2.48 per share, to $143 million, or $1.11 per share.
Sales dropped from $4.45 billion to $4.09 billion, an 8.5% decrease.
The income at Kohl’s stores that have been operating for at least a year as measured by same-store sales decreased by 7.7%.
While 2022 has proven to be more difficult than first anticipated, Kohl’s is still a financially sound business, according to Gass.
The business said on Thursday that it has signed an expedited share repurchase deal under which it would repurchase $500 million worth of its ordinary shares.
Additionally, Kohl’s stated that company will still pay stockholders a 50-cent quarterly cash dividend, as originally scheduled, on September 21.
As of Wednesday’s market closing, Kohl’s shares had decreased by nearly 31% so far this year.