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November 27, 2024
Kohl’s Stock Plunges After Disappointing Earnings and CEO Exit: Can the Company Still Compete?
Kohl’s has added to its recent streak of disappointing news with the release of its Q3 earnings on Nov. 26.
As The New York Post reported, a same-store sales decline of 9.3% was only one of the figures contributing to a poor earnings report — the department store’s 11th quarterly earnings report in a row illustrating a decline.
At the same time, the company announced that CEO Tom Kingsbury would be stepping down from his role. However, Kingsbury will remain in an advisory role and retain his seat on the company’s board until his retirement in May 2025. Michaels CEO Ashley Buchanan will replace Kingsbury as CEO on Jan. 15, 2025.
Kohl’s Q3 Earnings: The Latest Sign of Unease for Some Traditional Retailers?
The latest earnings report put forth by Kohl’s offered little hope to investors. In a post-earnings call discussion, Kingsbury was straightforward in his observation of the company’s performance.
“Our results did not meet expectations, and we’re frankly disappointed sales have been a challenge for us throughout 2024 and weakened further in the quarter,” he said, per FOX Business.
As Investopedia outlined, Kohl’s saw Q3 net revenue tumble year-over-year by 9% to $3.51 billion, with profit of $22 million (or 20 cents per share). This was well below analyst estimates of $3.85 billion in revenue and $29.8 million in profit (or 27 cents per share).
Furthermore, Kohl’s took a pessimistic turn regarding its full-year net sales outlook, revising its estimates downward from a previous decline of 4% to 6% to a bleaker 7% to 8%. It also revised its earnings per share (EPS) expectations downward from a previous estimate of between $1.75 and $2.25 to between $1.20 and $1.50.
The ill tidings for Kohl’s come directly on the heels of a troubled Macy’s earnings report as well — one which has been delayed until Dec. 11 after it was revealed that an employee had hidden up to $154 million in delivery expenses.
Macy’s did issue a preliminary earnings report, however, and it was downbeat as well, according to CNBC. Sales turned downward by 2.4% to rest at $4.7 billion, while comparable sales for its owned and licensed business, as well as for its online marketplace, fell by 1.3%.
Can Kohl’s Truly Recover After Such a Long and Significant Decline?
The primary question facing retail industry analysts as well as investors is: Can Kohl’s actually turn around a so-far steep decline?
On Tuesday after the earnings report and CEO announcement, investor skepticism seemed quite high, with Kohl’s stock falling by 17% by market close. Furthermore, the stock has plummeted by around 47% year-to-date.
Facing similarly problematic financials coming from company reports earlier this year, Kingsbury indicated that Kohl’s had attempted a significant repositioning in the market to confront contemporary challenges to its business, without much success.
“[Our] efforts have yet to fully yield the intended outcome due in part to a continued challenging consumer environment and softness in our core business,” the departing CEO said in August, as reported by FOX Business.
In terms of a turnaround, Kingsbury gestured toward a few key areas of potential improvement during the Nov. 26 earnings call:
- A push on digital and social media marketing in terms of new customer capture.
- Capitalization on the 4 million new Kohl’s Rewards members, hoping to drive loyalty rewards-based holiday spend.
- A rebalancing of buys to ensure inventory for key private brands.
- A reintroduction of the fine jewelry category, the loss of which was apparently felt by longstanding customers.
- Launching Hotelier, a Kohl’s bedding and bath brand.
- A continued and enhanced partnership with Sephora, an opportunity that is spurring growth.
- A similar partnership enhancement with Babies”R”Us.
Whether the incoming CEO can change the company’s course for the better is the elephant in the room, particularly given how far Kohl’s will have to climb to reach its previous market share (and stock price). Competition is fiercer than ever, with larger retail players such as Amazon and Walmart delivering strong quarterly results while rapidly expanding their markets — both demographically and in terms of new and technologically sleeker marketplace options.
Discussion Questions
Will Kohl’s attempts to stem the continued decline of its revenue and sales be effective?
What should executives and leadership figures for the Kohl’s brand do to turn around the company’s declining fortunes?
Are middle-market retailers in a “do or die” situation, confronted both by an increasingly price-conscious consumer base and ramped-up competition from bigger industry players?
Poll
Loading …BrainTrust
David Biernbaum
Founder & President, David Biernbaum & Associates LLC
Neil Saunders
Managing Director, GlobalData
Dick Seesel
Principal, Retailing In Focus LLC
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This has been a disastrous quarter for Kohl’s. Not only is the company still shrinking by a dramatic amount, but the pace of decline is worsening. Third quarter net sales are now 19.5% lower than they were in 2019, which is a chronic underperformance. The issues begin and end with the proposition. This has been broken for quite a while, and it remains broken today. Kohl’s assortment lacks focus, its stores lack basic merchandising disciplines, and the company has no real point of differentiation. And it’s no good trying to remedy this with Sephora, Babies R Us and Amazon: management needs to fix the core, not rely on third-party brands. Will new management help? Maybe. But shuffling the deck doesn’t guarantee a better hand.
For once, a stock picture tells a lot (tho for now, at least, it doesn’t read SEPHORA…by Kohls) Personally, I’ve never been that excited by the store: I’d heard wonderstoryz about them, and yet when I finally visited it was a definite “meh!” moment; so I’m probably not the best person to ask, as I never saw the attrraction in the first place. I’ll wish them well, but guess that they’ll need every wish they can get: the CV presented here is unrelieved gloom.
But don’t let that gloom spread: everyone have a joyous Thanksgiving.
Please note that my opinions and impressions are solely my own. As a non-stock analyst, I am not qualified to make recommendations regarding the purchase or sale of stocks. You should seek advice from your personal advisors regarding this type of matter.
For years, department stores have been suffering from structural declines as a result of Amazon’s pressure. When Kohl’s was one of the few mid-range department stores to buck the declining department store trend in 2018, it is now in chaos, turmoil, decline, and cluelessness.
According to the company, aggressive steps are being taken to reverse its declines. In reality, however, more deep discounting leading up to Christmas is not a realistic option for mid or long term survival.
I am unsure whether Kohl’s will survive without a drastic change in its business model, at least for now. Department stores have almost run out of gas and have no strategy or workable plans to compete with Amazon, Walmart, or Target.
There are a number of aspects of Kohl’s that have gone awry. Compare the atmosphere in a Kohl’s store with what it was like when the store was thriving. Once, stores were stacked with merchandise, carefully placed, and loyal customers explored a variety of options and favorite brands in all shapes, sizes, and colors.
In most stores today, there is almost a feeling of neglect. As a means of competing with digital giants, Kohl’s should consider improving their online presence and their e-commerce platform. The establishment of stronger partnerships with popular brands or exclusive collaborations may also be able to attract customers back to the store.
Meanwhile, the shelves are half full or empty, the styles and sizes are limited, and there are fewer brands available. Having a limited product variety results in decreased customer satisfaction and a lower likelihood of repeat business.
Consequently, shoppers may turn to competitors offering a broader selection to meet their needs, eroding Kohl’s market share further. As fewer customers enter stores, less merchandise is on display, and fewer registers are open, stores appear to be operating with an end in sight. Again, my point of view.
Kohl’s year-over-year sales have been negative every year for the past five years with the exception of 2022. This chain has never recovered from the pandemic and without some drastic change, I suspect these results will continue as its negative momentum continues. Changing leadership is a start, but they need a serious reset, and they can’t count on Sephora or Amazon to save them.
As I like to mention on RetailWire, I worked for Kohl’s from 1982 to 2006 and ran most of the center core businesses (plus Intimates) during my tenure. (In fact, my team introduced Fine Jewelry to Kohl’s in the late 1980’s.) The original concept — off-mall locations, a mix of brands and private label, a small and easy-to-shop footprint, and of course, a strong value perception — gained Kohl’s a lot of market share vs. traditional department stores in its heyday but its fortunes have declined along with the entire mid-market segment. Clearly Kohl’s is losing share not only to discounters like Target (maybe not lately) but also to e-commerce-only websites selling similar goods.
Is the problem fixable? It starts with correcting some of the multiple merchandising errors that Kohl’s has made. The latest Black Friday circular contains not a piece of fine jewelry or other accessories (other than gloves) as part of its offer — the space devoted to Sephora came at the expense of several related businesses. That’s only one example, and I have no idea whether the new CEO can move fast enough to reverse the trend.
Kohl’s recent struggles reflects the challenges facing many traditional retailers. While its efforts to adapt are commendable, its success depends on the ability to cater to evolving consumer preferences, compete with online giants, and execute strategies effectively. To turn things around, Kohl’s leadership must prioritize enhancing the customer experience, streamlining operations, and embracing e-commerce to stay relevant in today’s competitive retail landscape.