Kohl’s Corp. joined the rank of retailers reporting disappointing results and saw its shares drop another 7.3 percent in premarket trading on Thursday following an 11 percent decline in the market’s turmoil on Wednesday. Shares were trading at $40 on Thursday.
The retailer said Thursday that its sales weakened during the first quarter, lowering the company’s expectations for sales and earnings in 2022.
However, the company said it remains committed to its long-term strategy, which is focused on rolling out Sephora shops inside its stores and continuing to build its appeal as a destination for casual and active apparel for the family and strong values. Kohl’s also continues to evaluate bids to acquire the company from several parties including retailers and private equity firms.
Kohl’s reported net income in the first quarter ended April 30 at $14 million, or $0.11 a share, which was flat to the year-ago period.
First-quarter net sales and comparable sales decreased 5.2 percent to $3.47 billion, from $3.66 billion in the year-ago quarter.
“The year has started out below our expectations. Following a strong start to the quarter with positive low-single digits comps through late March, sales considerably weakened in April as we encountered macro headwinds related to lapping last year’s stimulus and an inflationary consumer environment,” said Michelle Gass, Kohl’s chief executive officer.
“We remain committed to our long-term strategy and are encouraged that our updated store experience, with Sephora at Kohl’s shops, delivered positive comparable store sales across these 200 locations for the quarter. We continue to expect our business to improve as the year progresses, with growth in the second half as we benefit from the rollout of 400 additional Sephora stores, enhanced loyalty rewards and further investment in our stores,”
“Regarding our review of strategic alternatives, we continue to engage with multiple interested parties. We have formally communicated the specific procedures for the submission of actionable bids due in the coming weeks. We continue with our detailed diligence phase and are pleased with the number of parties who recognize the value of our business and plan,” said Gass.
Michelle Gass
Courtesy Photo
Kohl’s in a statement said that its board is “thoroughly testing the company’s standalone strategic plan against potential alternatives and has designated its finance committee to lead the ongoing review of expressions of interest.” The board engaged Goldman Sachs to conduct a broad process to explore strategic alternatives, which to date has included engagement with over 25 parties.
Acacia Research Corp., Leonard Green & Partners, Sycamore Partners, Hudson’s Bay Co. and Simon Property Group in association with Brookfield are said to be among those submitting bids.
“Multiple bidders have been invited to a data room containing over 550,000 pages across over 55,000 documents, as well as meetings with management. While preliminary, non-binding proposals have been received, further diligence is ongoing and the board has requested fully-financed final bids to be submitted in the coming weeks,” the retailer said.
There’s been some industry speculation that Kohl’s at this point is leaning toward remaining independent, and that the chairman of the board, Peter Boneparth, according to one source, is said to be against making a deal to sell the company. A change in ownership would lead to the creation of a new board and likely changes to management as well.
On Wednesday, in the wake of the disappointing first quarter sales, the company disclosed two high-ranking departures: Doug Howe, who has been the off-mall retailer’s chief merchandising officer since 2018, and chief marketing officer Greg Revelle. Howe has already departed and Revelle is leaving on June 1.
Kohl’s has been under pressure from activist investors to raise shareholder value through a possible sale of the company, or other means including sale leasebacks of properties, though Kohl’s has rejected the idea of sale leasebacks.
On May 1, during the retailer’s annual meeting, Kohl’s shareholders approved the reelection of the 13 existing board members, a sign that shareholders support the directions the company is taking. In doing so, a majority of the shareholders rejected the slate of 10 directors that had been proposed by activist shareholder Macellum Advisors. The existing directors were reelected for one-year terms.
Based on the trajectory of sales so far this year and macro factors, Kohl’s lowered its forecasts for 2022.
- Net sales are now expected to be in the range of 0 to 1 percent as compared to the prior year.
- Operating margin is now expected to be in the range of 7 to 7.2 percent.
- Earnings per share is now expected to be in the range of $6.45 to $6.85, excluding any non-recurring charges, and full year 2022 net sales are seen increasing 2 to 3 percentas compared to 2021.
Earlier this year, Kohl’s had forecast:
- Net sales increasing 2 to 3 percent as compared to the prior year.
- Operating margin in the range of 7.2 to 7.5 percent.
- Earnings per share in the range of $7 to $7.50, excluding any non-recurring charges.
