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Kohl’s Corp. plans to eliminate eight “down-trending” women’s brands, in favor of growing the active category.
The eight brands are: Dana Buchman, Jennifer Lopez, Mudd, Candie’s, Rock & Republic, PopSugar, Elle and Juicy Couture.
Kohl’s announced in March that it would be exiting eight brands, but did not name them.
“This will create space to introduce a more compelling and current offering to our customers, while improving the overall clarity through reduced choice counts,” said Michelle Gass, Kohl’s KSS, +5.39% chief executive, on the Tuesday earnings call, according to a FactSet transcript.
“We’ve nearly doubled our active sales since 2013, and we see continued momentum in this category as customers focus on staying healthy.”
The change comes amid steep declines in apparel sales and Kohl’s revenue. With store closures due to the coronavirus, Kohl’s swung to a first-quarter loss. Kohl’s stores, like other nonessential retailers, closed for weeks as part of the response to the COVID-19 outbreak. The retailer now says that half of its stores nationwide have reopened.
The most recent government data showed a 16.4% plunge in retail sales, with clothing stores sinking a whopping 79%.
Read: Retail sales crater a record 16.4% in April amid coronavirus lockdowns and spending slump
Kohl’s revenue dropped more than 40% to $2.43 billion. The company also swung to a loss of $541 million, or $3.50 per share, after net income of $62 million, or 38 cents per share, last year. Adjusted losses per share were $3.20 against a FactSet consensus for a loss of $1.67 per share.
“[T]he toll on the financial health of Kohl’s should not be underestimated,” said Neil Saunders, managing director at GlobalData Retail. “The balance sheet has been weakened and long term debt has increased by around $1.6 billion from the same period last year. Given that the company will not simply make up for all the trade and profits lost during this quarter, that debt will be a future burden and will reduce the flexibility of the company to invest and evolve.”
Analysts said in March that the company had five months of available liquidity. Kohl’s says it ended the quarter with $2 billion in cash.
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“There was some sales growth within this category during the lockdown as consumers focused on exercising and fitness from home,” said Neil Saunders, managing director at GlobalData Retail. “This will have been to Kohl’s benefit even if it did not completely mitigate the sharp decline in other apparel segments.”
Going forward, Saunders is concerned that despite having some advantages, like a focus on sporting and fitness apparel, Kohl’s will struggle. In part it’s because other apparel, for a party or for work, for example, is still not top on consumer shopping lists.
“Following months and months of wearing athleisure and ultra-comfortable clothing items, consumers will be less inclined to get dressed up, especially if stay at home orders are mandated,” said Shelly Socol, co-founder of One Rockwell, an e-commerce agency serving lifestyle brands. “Additionally, with the pause of public events, dinners, and activities along with few free-standing retail stores open, the decrease is not a surprise.”
But, if there’s a glimmer of light at the end of the tunnel, Socol says it’s the fall when shoppers might be ready to dress up again.
Meanwhile, Kohl’s says it will begin accepting returns on Amazon.com Inc. AMZN, -0.07% purchases again soon.
“We will also resume our Amazon returns program as stores reopen. And we expect to see traffic build as customers return items, purchased over the last several months,” said CEO Gass on the Tuesday earnings call.
She brought up the program later in her remarks as well.
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“As you know, we’ve talked a lot about innovating within our stores, innovating and investing in the experience, bringing in new concepts like Amazon Returns, which, as we open stores, we’re bringing that back,” she said. “And that will continue to be a priority so that customers, again, are looking at Kohl’s as top of choice in terms of where they want to shop.”
Some analysts think Kohl’s has become too dependent on Amazon traffic.
“Fiscal year 2020’s performance underscores Kohl’s was relying too much on Amazon Returns to drive achievement of targets and Kohl’s will need to find new ways to stay relevant,” wrote Camilla Yanushevsky, equity analyst at CFRA Research.
CFRA rates Kohl’s stock sell with a $12 price target.
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Cowen rates Kohl’s stock market perform with a $20 price target.
“We are cautiously optimistic Kohl’s could see a longer-term benefit as competitors close doors and shoppers gravitate toward its value proposition, off-mall convenient real estate, and innovative partnerships,” wrote analysts led by Oliver Chen.
“As we look ahead, we do believe the current environment and shopper trends turning to e-commerce will force Kohl’s to quickly re-think the role of stores, engage in new and innovative partnerships, and potentially trim its least productive doors as productivity will inevitably slow.”
Kohl’s highlighted some of the other innovations coming down the pipeline, including new brands like Lands’ End Inc. LE, +0.96% and Toms, which the company thinks will attract millennial customers.
Kohl’s also plans to leverage in-store technology and a more localized store experience to its benefit.
Kohl’s stock, and has plunged 69% over the past year. The S&P 500 index SPX, +0.03% is up 3.9% for the past year.
