Net sales were down by 5.1% to $3.3 billion, and comparable sales were off by 4.2% year on year in the second quarter, according to a press release.
Net income was better than expected, indicating some measure of success in cost management and turnaround efforts focused on margins.
Shares roared ahead by 20% in intraday trading Wednesday.
Looking ahead, the company sees a net sales decline of 5% to 6%, and a comparable sales slide of between 4% and 5%, per the release.
“We saw our sales progressively improve throughout the quarter, with May having the softest performance due in part to colder, wetter weather over the last couple of weeks of the month, including the Memorial Day holiday, which negatively affected our spring seasonal businesses,” Kohl’s Interim CEO Michael Bender said during a conference call with analysts. “We saw improvement in June and ended the quarter strong with July comp sales flat to last year. The improved performance was driven by our digital business and our proprietary brand sales, both of which performed positively in July.”
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Low-Income Consumers Are Pressured
The company saw 28% digital sales penetration and 20 million users of the Kohl’s app in Q2, according to an earnings presentation.
“Although we are encouraged by our second-quarter results and the improved sales trend we saw throughout the quarter, we also recognize that consumers continue to be pressured and are being choiceful with their purchases,” Bender said during the call. “Specifically, our lower- to middle-income customers remain the most challenged, while our higher-income customers have proven to be more resilient. These lower- to middle-income customers continue to prioritize value and are trading down into lower opening price point products.”
Proprietary brands outperformed the company in the quarter, per the presentation. Strength was seen in brands like Sonoma, Lauren Conrad and FLX, Bender said during the call.
The company plans to continue focusing on the women’s category “as it serves our core customer and is a key driver of overall company performance,” he said.
Sephora at Kohl’s grew 3% versus last year, Bender said, adding, “We remain on track to delivering our goal of creating a $2 billion beauty business.”
Looking ahead, the company will seek to make more brands coupon-eligible, a shift that has already been in the works, he said.
“This change generated an immediate positive response in our digital channel, where pricing transparency plays a significant role in customer decision making,” he said during the call.
Kohl’s Chief Financial Officer Jill Timm said on the call that the decline in Q2 sales was primarily driven by fewer transactions, specifically in stores.
“However, we did see traffic improve in both channels throughout the quarter with positive traffic in July helping deliver a flat sales performance to end the quarter,” she said. “Digital sales outpaced store sales during the quarter, driven by strong conversion rates.”
In discussing the coupon strategy, she told analysts: “We had another over 50 brands that we just made the move for August. So, we really think we’re set up well to continue to deliver that value when it’s going [to] become incredibly important to that customer in the back half and especially holiday [season].”
In the immediate environment, “as August is concerned, we’re actually off to a good start here in the first month of the quarter,” Bender said during the call. “Some of the back-to-school category, specifically within that performance like backpacks, kids footwear, fleece, are the ones that we’re seeing strength in.”
