Kohl’s stock crashes as markdowns spark sharp margin contraction

Bruce Bennett/Getty Images News

Kohl's Corporation (NYSE:KSS) stock slid more than 10% in premarket trading after posting a surprise quarterly loss.

For the fourth quarter, the company posted a $2.49 loss per share, missing expectations by a stunning $3.46. A report of $6.02B in revenue also came up narrowly short of estimates while a 6.6% decline in comparable sales for the quarter was steeper than the 4.71% consensus estimate.

Gross margins contracted 10.2% from the prior year quarter due to clearance markdowns and persistent cost inflation. Promotional activity was cited as driving 7.5% of the margin contraction.

“Kohl’s fourth quarter results reflect meaningful proactive measures we took to better position the business for 2023, as well as sales pressure driven by the ongoing persistent inflationary environment,” CEO Tom Kingsbury commented. “We are refining our strategy and re-establishing merchandise disciplines with a customer-centric focus across the organization. I am confident that our efforts will drive improved, and more consistent, sales and earnings performance over the long-term.”

Moving forward into 2023, the company anticipates a 2% to 4% decline in net sales as compared to 2022. Diluted earnings per share are expected to range from $2.10 to $2.70 for the year ahead, well below the $3.20 consensus. Management expects capital expenditures to range from $600M to $650M as the company seeks to expand its Sephora partnership and restock shelves. Merchandise inventory closed the year up 4% from 2021.

Share of the Wisconsin-based retailer fell 11.59% in premarket trading on Wednesday.

Dig into the details of the print.

Comments

[EC11885]

KSS is starting to remind me of SSI. Hope they can right the ship.

[Clark158f1]

Terrible management.....expect a slow drift lower.

[alexalekhine]

@Clark158f1 isn't the CEO only there a couple of months?

[GR Value]

@alexalekhine He's been a regular there but I don't think it's all management's fault. In the end Sephora is a 1.5 billion loss. The buybacks are a 1.3 billion loss and going forward the industry has changed where import costs rise and pricing power is non existent.

6 more months of negative or slight profits and the stock will be at bed bath levels probably. 27 is delusional unless you expect 3 or 4 a year. As is the book value is non existent if you mark to market and subtract Sephora losses. Ugly here.

[alexalekhine]

@GR Value Please explain how Sephora is a $1.5bn loss?

[Steve Stauning]

There is literally nothing anyone needs at Kohl's. In an environment of high inflation and rising interest rates (or worse, a recession), retailers selling only Kohl's-like items will struggle. I agree with GR Value; I'll look at this in the mid-teens, though there is a real possibility of an activist forcing a sale.

[Tschurin]

@Steve Stauning Ridiculous comment, sounds like you have an agenda. It would not surprise me if some of Kohl's problems with it's customer base may come from the occasionally voiced [here on SA] complaints that KSS is a "woke" company. Enough of those holding that view and avoiding the store might help explain some of the sales weakness. JMHO

[BuffteethrBlog]

@Tschurin He is not far off. My wife was Kohl's devotee for all family clothing needs. She loved the coupons and $5 Kohl's cash. She rarely goes to Kohl's now and gets all our clothing from Ross, Target and Macy's discount rack and nearby outlets. On the few occasions we go in there after getting a coupon the Kohl's in our upper middle class area is mostly empty. Kohl's prices are ridiculous NOW compared to other stores. They used to be the cheapest for high-quality clothes, especially their sales rack. I love their Marc Anthony shirts.

[OverTheHorizon]

@Steve Stauning to who? Eddie Lampert to bleed it dry and slowly close all the stores?

[pat45]

so was this due to charges?? Terrible numbers, not in but watching like the activists who want to buyout KSS

[elwalle]

I've seen worse numbers..... I just can't remember when

[pratikshah]

I love getting $5 Kohls cash when returning Amazon items there.

[GR Value]

Now we know why Michelle Gass fled, because Sephora is a disaster that is probably not profitable, all the PP&E built into it is a future write-off as I stated, and consumer are shunning any sort of higher prices to offset higher costs.

Again, I feel like Kohls may be a winner beyond 2025 which is why I'm betting on the bonds but the risks and results warrant mid teens without a doubt on the stock. I have stayed far away from the stock and the fact that they declared a dividend is testament to their extreme ineptness.

[glenart]

@GR Value Looks like Kohls spent the last quarter dumping all the overpriced junk merchandise that Michelle Gass had brought in the front door. Now that Michelle Gass has departed out the back door, Kohls might be able to steady the ship. For the life of me, I cannot understand how these companies keep getting so badly fooled by these big bags of hot wind like Michelle Gass.

[PEAK AUTOS]

@GR Value I own a small position in KSS so I would love to argue with you, but I can not. My thinking was hey KSS is keeping the dividend so the quarter can not be that bad. Boy was I wrong.

Will listen to conference call but this looks like the worse quarter for any retailer.

I have no idea what current CEO has done to warrant being named permanent CEO after reviewing these results and Michelle Gass definitely knew when to jump off a sinking ship instead of going down with the ship.

Will listen to conference call and wait a few weeks to see how activist investors respond before deciding to bail on KSS.

[thedoc5350]

@GR Value Agree that the bonds could be the best play somewhere in here, though I wouldn't even touch them unless there's more clarity on the CEO's plan.
Human nature is to look for a shorter maturity bond where one feels comfortable with liquidity up to that particular year. I do the opposite, instead waiting to get comfortable that the Company will pull through, and then going for the lowest $ price debt. Bankruptcy judges don't care one bit about your maturity date! The 5.50%s due 2045 will be fun to watch.