Kohl’s Slips as Long-Term Growth Plans Fall Short of Expectations

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Investing.com – Kohl’s Corporation (NYSE:KSS) stock traded 7.5% lower Monday as the retailer disclosed long-term growth targets that fell short of expectations.

The company’s plans to grow sales by a low-single-digit percentage annually and make Sephora a $2 billion annual sales business come in at the time when the retailer has been under pressure from activist investors to consider a sale and unlock value from its real estate. One such investor, hedge fund Engine Capital which owns around 1% of the company, has been urging the department store chain to consider separation of its faster growing e-commerce business.

‘Sephora at Kohl’s’ stores is an attempt to position the company as a beauty destination. At these stores, customers can explore an assortment of prestige makeup, skincare, hair, and fragrance brands. The company plans to have 850 of them by 2023, it said last week, while disclosing its fourth quarter results.

For most retailers, digital is the faster growing business compared to their legacy physical stores. Financial investors thus see more value in them and consider the old businesses as dragging down the more lucrative piece, and hence the push for such sales. Kohl’s statement today didn’t reflect the company meeting those demands. 

Kohl’s also plans to open more than 100 smaller format shops to attract new customers over the next four years. CEO Michelle Gass told CNBC these stores would be around 35,000 square feet, compared to about 80,000 square feet that many Kohl’s outlets go up to.

The company said it will target operating margins of 7-8% annually and per share earnings growth of a mid-to-high single-digit percentage.

According to CNBC, Macellum Advisors, another activist investor, called Kohl’s results disappointing, saying it remained skeptical of the retailer’s future, given the current board of directors and management configuration.

Kohl’s fourth quarter total revenue rose about 6% to $6.5 billion. Adjusted EPS fell by 2 cents to $2.20.