Kohl’s sales and profits climb in the third quarter.
Kohl’s Corp. shares soared 6.34% on the New York Stock Exchange in morning trading today after the retailer reported third quarter sales rose 15.5% to $4.36 billion in the 2021 third quarter, from $3.77 billion in the year-ago period. Same-store sales leapt 14.7%, and the company raised its full year guidance to $7.10 to $7.30 per share, from a prior range of $5.80 to $6.10 per share.
Michelle Gass, Kohl’s CEO, said all the pieces of the retailer’s strategy came together in the third quarter ended Oct. 31. “We remain incredibly confident in the future of our business,” she added.
Revenue rose 13.4% to $4.6 billion in the third quarter from $3.98 billion in the 2020 period, surpassing analyst estimates of $4.27 billion. Net income rose to $243 million, or a record $1.65 per share, from a net loss of $12 million, or 8 cents per share in last year’s third quarter, exceeding the 64 cents per share predicted by analysts.
Kohl’s bet big on beauty with a partnership with Sephora for 2,500-square-foot beauty destinations designed to look like Sephora’s own stores. At Kohl’s units with two doors – about 80% of the fleet – Sephora will have a dedicated entrance with its logo on the facade.
The initial rollout of the first 200 Sephora at Kohl’s shop-in-shops began this fall with 400 units opening in the spring, and another 250 bowing in 2023. Gass on a conference call with analysts this morning said 25% of Sephora customers are new to the retailer and that the partnership will attract millions of consumers.
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“It’s already meaningful and that will continue to grow,” she said of Sephora’s early days at Kohl’s, adding that new customers are also shopping other areas of the store. “Sephora adds tremendous credibility to Kohl’s as well as a more youthful, upscale experience. Sephora is driving extraordinary growth in our beauty business.”
The retailer is seeing a mid-single digital overall sales lift in stores where Sephora has launched, Gass said, adding that the shops are attracting a younger and more diverse audience. “We’re pleased to see customers purchasing across a wide range of beauty categories and price points,” she said. “We’ve already started to see customers return. We’re renovating our stores for the Sephora buildout.”
Store sales increased by double digits, Gass said, adding that digital sales grew 6%, increasing 33% on a two-year basis. Digital accounted for 29% of total sales. “We continue to be encouraged by how the two channels reinforce each other,” the CEO said. “We’re excited by the significant growth in omnichannel, which is the most productive.”
Kohl’s investments in active wear continue to pay off, Gass said, noting that the active business significantly outpaced company sales, growing more than 25% compared to last year’s third quarter and representing 26% of total sales. Kohl’s expanded the square footage devoted to the category by 20% with a goal of doing 30% of its business in active wear. The retailer gained traction in ath-leisure and inclusive sizing.
Kohl’s is launching an exclusive Draper James collection from actress Reese Witherspoon in the spring, and launched new brands such as Calvin Klein basics and loungewear in 600 stores, added Tommy Hilfiger men’s sportswear and introduced Eddie Bauer in 500 stores. “We’re extremely pleased with initial results of these new brands,” Gass said.
Kohl’s women’s business was impacted by supply chain issues, including extended transit times and significantly higher transportation costs. “We’re deeply committed to reigniting growth in our women’s business,” Gass said. “We reset our brand portfolio and strengthened our differentiation by amplifying private brands like Sonoma, while selectively introducing key national brands.”
Inventory levels remain below original plan, Gass said, noting that inventory was down 25% on a two-year basis. “It will take time for the inventory to rebuild, but the team is doing everything possible to mitigate the supply chain challenges,” she said.
“We’re making great progress against our strategy and navigating what continues to be a [difficult] operating environment,” Gass said. “Q3 represented another outstanding quarter continuing our momentum from the first half of the year.
“We’ve executed a major repositioning of the Kohl’s operating model, strengthened the product portfolio and are elevating our private brands with more clarity. We improved the overall customer experience. We’re in a very strong financial position. Our business has momentum and we’re focused on building on it as we move into the fourth quarter and into next year.”
