Kohl’s falls after new forecast cut on inflationary pressure, Sephora to expand to Kohl’s stores

Kohl’s Corp. shares fell after the company cut its full-year profit and sales guidance for the second straight quarter as inflation suppresses demand and costs continue to rise.

The department store chain now expects earnings per share, excluding certain items, in the range of $2.80 to $3.20. Kohl’s had already cut its forecast in May, telling investors to expect $6.45 to $6.85.

Net sales for the year are forecast to fall 5 percent to 6 percent, Kohl’s said in a statement Thursday, down from an already lowered outlook of flat to up 1 percent this year.

Kohl’s is struggling as inflation raises costs and puts pressure on consumers’ budgets, although sales growth had been difficult to achieve even before the macroeconomic environment worsened. On Thursday, the retailer said middle-income customers had become more price conscious, with some spending less per transaction, making fewer trips and switching to value brands.

“We have adjusted our plans, implemented actions to reduce inventory and reduce expenses to account for a softer demand outlook,” CEO Michelle Gass said in a statement.

Kohl’s shares fell as much as 10 percent in trading in New York. The stock had already fallen 31 percent this year through Wednesday.

Inventories in the quarter ended July 30 rose 48 percent from a year ago due to lower sales and other factors, including investments to support the opening of 400 Sephora stores at Kohl’s locations by 2022. The retailer has relied on the LVMH owned the beauty company to drive sales and attract new customers. Excluding the additional items, the inventory increased by 27 per cent.

“Lost the plot”

Not everyone is convinced that inflation is to blame. The main sources of Kohl’s woes are internal, said Neil Saunders, a US-based analyst at consultancy GlobalData Plc.

“The company has lost its act in terms of merchandising and selection planning and appears to have a seemingly haphazard approach to purchasing,” Saunders said in an email.

Meanwhile, gross margin fell 2.9 percentage points in the quarter due to shipping costs, product inflation and higher promotions.

The closely watched value for same-store sales fell 7.7 percent. Analysts were looking for a 7.4 percent decline, according to the average of five estimates compiled by Bloomberg.

Kohl’s has faced intense activist pressure to sell itself after a long stretch of flagging sales. The board recently took the company off the market after it failed to agree on a potential $8 billion deal, just two months after fending off an attempt by investor Macellum Capital Management to overhaul the board.

On Thursday, the retailer said it entered into an accelerated $500 million buyback agreement. Saunders said the funds should instead be invested in revitalizing shops.

By Daniela Sirtori-Cortina

Learn more:

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Hedge funds are urging Kohl’s and Macy’s to consider radical changes to how they operate as the retailers struggle to reverse decades of decline.

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