Kohl’s stock price tanked by as much as 26% on Thursday after the department store chain posted a surprise quarterly loss on weaker consumer demand — especially among inflation-battered middle-class shoppers, the company said.
The Wisconsin-based company cut its annual sales and profit forecasts as shoppers are still prioritizing essential purchases over discretionary products like apparel, electronics and home goods as they face dwindling pandemic-era savings.
Discretionary spend of Kohl’s middle-income customers continues to be pressured by a number of economic factors including high interest rates and inflation, while it has remained steady among high-income customers, Chief Executive Officer Tom Kingsbury said on a post-earnings call.
Kohl’s — which operates more than 1,100 stores across the US and has a retail partnership with LVMH’s beauty products retailer Sephora — said net sales dropped 5.3% for the quarter that ended on May 4 compared to the same three-month period last year.
The company forecast fiscal 2024 net sales to fall between 2% and 4%, compared with its previous expectation of between a 1% drop and a 1% rise.
Khol’s was down 23% at 1 p.m. ET, at $20.92 a share, after plunging more than 26% following the earnings report — putting the stock price on track for its lowest value since November.
The department store chain’s dismal quarterly report comes in contrast to some of the other retailers, including Abercrombie, which reported strong first-quarter sales owing to its merchandise being more on-trend.
“Kohl’s has been too reliant on other brands such as Sephora, Amazon, and now Babies R Us to drive traffic rather than distinguishing its core brand identity,” Emarketer senior analyst Zak Stambor said.
Shoppers are willing to spend if they see value in an on-trend, well-made dress from Abercrombie, or a healthy salad from Sweetgreen, he added.
Kohl’s also said that lower clearance sales compared to last year resulted in a more than 600-basis-point drag on comparable sales that decreased 4.4% in the first quarter.
Since 2019, the retailer’s sales have dropped 16.8%, translating into a revenue loss of $643 million, according to The Wall Street Journal.
In that five-year period, Kohl’s is estimated to have lost around 1.5 million customers.
In the previous quarter, Kohl’s posted a loss of $27 million. Last year, it reported a profit of $14 million.
Neil Saunders of the research firm GlobalData told the Journal that Kohl’s is failing to generate enough money to cover interest payments on its debt. That means Kohl’s won’t have as much money it needs to upgrade stores.
Earlier this year, an activist hedge fund chaired by former Canadian Prime Minister Stephen Harper pushed Kohl’s to sell itself.
Vision One Management Partners, a fund co-founded by Harper and former Carl Icahn protege Courtney Mather, has built a stake in Kohl’s and expressed concerns to the company about its future, sources told Reuters in February.
In recent years, other activist shareholders have pushed Kohl’s to explore a sale. The retailer rejected offers worth as much as $64 per share in 2022, because it wanted more than $70 per share, but never got an offer that high.
The retailer has since struggled to make its stores more profitable and grow its e-commerce business.
Ancora Holdings, Macellum Capital Management and Legion Partners Asset Management are among the other activist hedge funds that have pushed for changes at Kohl’s.
Kingsbury joined the Kohl’s board in 2021 with backing from Macellum and Ancora.
He replaced Michelle Gass, who left in 2022 to join jeans maker Levi Strauss as CEO last year.
Department story rival Macy’s has also been the target of activist shareholders, Earlier this year, the company rejected a $5.8 billion offer to be taken private by investors Arkhouse Management and Brigade Capital Management.
Macy’s said the offer was too cheap and that it lacked the necessary financing.
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