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01/10 16:06
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Despite some vague responses in the Q&A, Kohl's earnings call indicates positive momentum. The improvement in guidance, successful inventory management, and strategic initiatives like Sephora's expansion and proprietary brand focus are promising. The market cap suggests moderate volatility, so a positive sentiment aligns with expected stock movement.
Net Sales declined 2.8% in the quarter and 4% year-to-date. Comparable sales declined 1.7% in Q3 and declined 3.2% year-to-date. The decline was mainly driven by an increase in transactions versus prior quarter, while average transaction value remained flat year-over-year.
Digital Sales grew by 2.4% versus last year. This performance was driven by an increase in traffic throughout the quarter going from high single digits in August to high teens in October.
Other Revenue $168 million in Q3, a 17% decline compared to last year. The decline was due to the launch of the co-brand credit card last September and a shift of some credit-related expenses from SG&A into other revenue.
Gross Margin 39.6%, an improvement of 51 basis points versus last year. The improvement was driven primarily by strong inventory management and product mix benefits driven by positive proprietary sales performance.
SG&A Expenses declined 2.1% to $1.3 billion in Q3, driven by lower spending in stores, marketing, and fulfillment, with additional savings stemming from a portion of credit expenses shifting into other revenue.
Depreciation $176 million in Q3, a decrease of $8 million versus last year. The decrease was driven by lower capital expenditures and the impact from closed locations.
Interest Expense $75 million in the third quarter.
Adjusted Net Income $11 million, equating to an adjusted diluted earnings per share of $0.10. Year-to-date, adjusted net income is $61 million and adjusted diluted earnings per share is $0.54.
Inventory decreased approximately 5% compared to last year in Q3. The improvement was due to better flow of inventory and earlier inventory arrival compared to last year.
Operating Cash Flow $630 million year-to-date, with adjusted free cash flow at $270 million. The company remains on track to achieve $1.3 billion of operating cash flow and $900 million of free cash flow by the end of the fiscal year.
Borrowings on Revolver declined to $45 million at the end of Q3, over a $700 million decrease from last year. The company remains committed to fully exiting the revolver by the end of this year.
Capital Expenditures $308 million year-to-date, with a full-year expectation of approximately $400 million. Investments include the completion of the Sephora rollout, additional Impulse Q lines, and the expansion of an e-commerce fulfillment center.
Proprietary Brands: Positive sales performance in Q3, led by brands like SO, Juniors LC, Simply Vera Vera Wang, Tek Gear, and FLX. New proprietary brands launched in home category: Hotelier, Mingle & Co, and Miryana.
Sephora Partnership: Sephora delivered nearly a $2 billion business in 4 years. Announced MAC expansion to 850 stores by Spring 2026.
Impulse Queuing Lines: Completed rollout in 613 stores, driving over 40% growth in Q3.
Jewelry Category: Achieved 10% growth in Q3, with strong performance in fashion, bridge, and fine jewelry.
Digital Sales: Increased by 2.4% in Q3, driven by higher traffic and improved customer engagement.
Holiday Season Positioning: Focused on value and gifting, with proprietary brands and trending toys like Barbie, LEGO, and Pokemon.
Inventory Management: Inventory decreased by 5% in Q3, with better flow and earlier procurement.
AI Integration: Applied AI for efficiency in site updates, app performance, marketing, and inventory allocation.
CEO Appointment: Michael Bender appointed as CEO, emphasizing stability and strategic decision-making.
2025 Initiatives: Focused on curated assortments, value leadership, and frictionless omnichannel experience.
Customer Discretionary Income Pressure: Customers, particularly low to middle-income and younger customers, are becoming increasingly choiceful due to persistent pressure on their discretionary income. This is expected to continue into the fourth quarter, reflecting the uncertain macroeconomic environment.
Unseasonably Warm Weather: Unseasonably warm weather in September negatively impacted fall seasonal businesses, causing a slowdown in sales.
Footwear and Kids Categories Underperformance: Footwear and kids categories remain challenged, with softness in active footwear and boots, and underperformance in proprietary kids' brands.
Small Electrics Underperformance: Small electrics continue to underperform due to price increases and reduced buying quantities based on elasticity analysis.
Credit Business Decline: Other revenue, primarily from the credit business, declined by 17% in Q3, with continued pressure on Kohl's Card customers and a shift of credit-related expenses into other revenue.
Macroeconomic Uncertainty: The macroeconomic environment remains fluid and dynamic, with persistent pressure on middle to low-income customers' discretionary income, impacting overall sales and customer behavior.
2025 Initiatives: Kohl's is making progress on its 2025 initiatives, which include offering a curated and balanced assortment, reestablishing Kohl's as a leader in value and quality, and delivering a frictionless shopping experience across omnichannel platforms. The company is focused on improving its proprietary brands, optimizing store layouts, and enhancing digital platforms with AI.
Holiday Season 2025: Kohl's is optimistic about the holiday season, emphasizing promotional strategies, proprietary brands, and gifting categories like toys, home, and Sephora products. The company expects a promotional environment and plans to leverage Kohl's cash and awards to drive customer engagement.
Full Year 2025 Guidance: Kohl's expects net sales to decline by 3.5% to 4%, comparable sales to decline by 2.5% to 3%, other revenue to decrease by 11% to 12%, gross margin expansion of 30 to 35 basis points, SG&A decline of 3.75% to 4%, and adjusted diluted earnings per share of $1.25 to $1.45.
Quarterly Cash Dividend: The Board declared a quarterly cash dividend of $0.125 per share payable to shareholders on December 24.
Despite some vague responses in the Q&A, Kohl's earnings call indicates positive momentum. The improvement in guidance, successful inventory management, and strategic initiatives like Sephora's expansion and proprietary brand focus are promising. The market cap suggests moderate volatility, so a positive sentiment aligns with expected stock movement.
The earnings call summary presents a mixed picture with weak financial guidance, declining comparable sales, and a cautious outlook for the back half of the year. Despite some positive initiatives like proprietary brand growth and Sephora expansion, uncertainties around tariffs, credit revenue decline, and lack of clear guidance on achieving positive comps suggest negative sentiment. The market cap indicates moderate sensitivity, leading to a prediction of a negative stock price reaction in the range of -2% to -8% over the next two weeks.
The earnings call summary reveals mixed signals. While EPS exceeded expectations, guidance remains weak with declining sales, reduced dividends, and a cautious outlook. The Q&A section highlights uncertainties, particularly regarding growth timelines and competitive pressures. The lack of clarity on key issues like tariffs and inventory management further dampens sentiment. Given the mid-cap size of Kohl's and the negative guidance, a negative stock price reaction is expected over the next two weeks.
The earnings call summary and Q&A indicate several challenges: declining sales, a net loss, and reduced dividends. While some operational improvements are noted, such as gross margin increases and cost reductions, the overall financial performance is weak, with a negative EPS and no clear timeline for growth. The market strategy focuses on restoring value and customer trust, but competitive pressures and tariff issues persist. The market cap suggests a moderate reaction, leading to a predicted stock price movement in the negative range of -2% to -8% over the next two weeks.
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