Release Date: May 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sephora at Kohl's continues to deliver exceptional results, with a 60% increase in sales and over 20% comparable beauty sales growth.
- Inventory management has been effective, with a 13% decline in inventory and increased inventory turn.
- Gross margin expanded by 48 basis points to 39.5%, driven by strong inventory management and lower freight expenses.
- New categories such as home decor, pet products, and gifting have shown significant growth, with sales increases of over 30%, 100%, and 30% respectively.
- The company is making progress in its women's business, with regular price sales up 3% and positive trends in polished casual and dress offerings.
Negative Points
- First quarter results did not meet expectations, with net sales decreasing by 5.3% and comparable sales declining by 4.4%.
- Clearance activity was a significant headwind, representing more than a 600 basis point drag on comp sales.
- Spring seasonal product demand was softer than expected, impacting categories such as tees, shorts, and tanks.
- The activewear category accounted for the majority of the overall sales decline in the quarter.
- The company experienced softness in its legacy home offerings, including kitchen electrics, floor care, and bedding.
Q & A Highlights
Q: Tom, I was just wondering, if you just talk some more just around the, I guess, the general confidence in the strategy on a go-forward basis. I think when you think is some of the in some of the challenges that you're saying can within the (inaudible) business and even within the industry?
A: As the prepared remarks, I indicated we feel very good about what we have in terms of our overall strategy. We're going to tweak things along the way. I think when you look at the first quarter results, the clearance, the headwind really hurt us 600 basis points. So we had a strong performance in our regular price business, which obviously is important, especially sport go forward. But, fundamentally out things that are working as part of our strategy is supposed to working very well with a 60% total growth and 20% comp. We've done very well in categories in the home, which are part of our major strategies like seasonal and everyday the core. Our pet business is good. Our gifting business has good. Impulse is good. We've made a lot of progress in our apparel businesses by growing the Pulse casual and dress business really across the board. Our value strategies are working a high volume. Pricing has worked very nicely. We've gotten a lot of positive feedback from our customers have come. And we're doing a good job on managing our inventories than expense. And so those fundamentals are still in place. And Jill talked about producing a long term debt, but we have worked to develop candidly. Even though we feel our of our strategy is a good one, but we need to do a better job in rebuilding our active business. It's one of our priorities overall. The accessory business, our jewellery business, there's a huge, huge opportunity for us. We've lost a lot of business with the support rollout overall and some of the legacy businesses and homes such as a floor care, embedding a kitchen electrics to underperform. So we're working hard on that to bring in more newness in that. And then we're working hard to to drive traffic in stores and in digital. So, but, long, long answer, but we feel good. We feel good about what's happening and we feel good that the clearance headwinds, we took it upon a smart markdowns in the fourth quarter of '22 to clean all the inventory up. So that obviously that was a huge headwind for us in the first quarter.
Q: Why you think the clearance impact was worse than you had originally guided to. And as you think about the biggest needle movers going forward, it sounded like juniors, active apparel, jewelry. What will really drive the comp better as we think about guidance and what should happen sequentially in the back half? And a follow up with your comp guidance for the quarter, what's the assumed for June and July relative to May? And are you thinking that traffic will be negative, positive or flattish? Thank you.
A: So I'll start and just for clarification. It wasn't clear insight. I think we got around and the guide. It was a big headwind in the quarter. I think that was unique to us. And what we did, we started the quarter while at the right price business, incredibly strong, offsetting the clearing headwind. And so as we came out of the market, we felt really good initiatives and the momentum behind those to help offset clearance. As we moved into the latter part, the late part of March and into April, we saw a slowdown there, right price selling, particularly around spring seasonal goods. And that became the headwind that we couldn't overcome to get back into that flattish comp that we had guided to in. So that really is what happened in the quarter. I think fundamentally the company still did well. We manage the inventory when that a lot of new discipline in the past, we want to add to being down 13% and inventory when we saw the sales decline really is a testament to that new muscle that we have that obviously helped drive our margin and we are able to hit our margin and then we pulled back on expenses. Our expenses actually came in better than we had anticipated because, we are able to react. So I think that just goes to the testament of IT organization and the agility we have when we do have some businesses on the top line that really came that regular-price slowdown. So if I got a comp guide and for Q2, obviously not going to speak to the monthly our guiding. But what I would say is when we saw improvement in our business, once we got through the clearance impact, we saw a lot of that comes through our traffic and transactions, and that was actually relatively flat as we went into March and April. So we do see that we are gaining those steps and the momentum, but we also know the company, the customer as a little bit more discerning out there that we have to make sure are putting our first best step forward with that value, which you know calls is known for, and that's what we're going to go ahead and do. May did start out well for like April ended. But what I will say is that we are progressing. We're seeing ourselves pick up, particularly in that spring season doesn't coming a little bit later. We can continue to see the momentum in the strategic initiatives that Tom has outlined. And that's what's really helping us drive back to the rest of the year will be flat to down to, but we're still being mindful of the uncertainty in the consumer and the macro environment.
Q: The 600 basis point headwind on the lower clearance. How much of that would you categorize as somewhat onetime as somewhat once you cycled last year's actions? And how should we think about that moving forward? I guess you continue to manage inventory very lean. So would it be fair to think that reduced clearance product availability would be a headwind moving forward? And then bigger picture, do you think you're losing a cohort of your customer base to other retailers as you manage to this much lower level of clearance product? And what are you doing to engage that customer and make sure they still see value in the overall assortment, but that clearance product no longer being there to such an extent.
A: Well, first of all, the clearance levels going into '23 totally unique. It was a once-in-a-lifetime government clearance level because of trying to clean everything up as we went into '23. So it's highly distorted. As a percentage total of our business it was obviously larger than ever. So we never want to get to that level. We want to sell the appropriate amount of clearance, but we're focused on regular price as well. But the situation going into '23 was totally unique and we're never going to get to those levels. It's always going to be part of our business. But reducing our inventories overall in as we are down 13% at the end of the first quarter. We're not going to have as much clearance and we're going to work to go after the customer with building our support business and building our underdeveloped, underpenetrated categories and home. We're going to go after gifting, we're going to go after impulse. We're going to continue to broaden
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
