Kohl’s Bets It All on Sephora as Final Buyout Bids Come In

If there is one thing everyone can agree on about Kohl’s, it’s that the past year has been volatile and challenging, with more to do about being bought out or broken up than shoring up its fate in the beleaguered department store sector.

After reporting first-quarter earnings results Thursday morning (May 19) that were in its own words “below expectations,” the Wisconsin-based retailer was more eager to talk about its growing partnership with makeup giant Sephora than the unexpected 5% decline in sales at its 1,100 stores.

“The transformation underway in our stores, with our partnership with Sephora as a cornerstone, is driving impressive results,” CEO Michelle Gass said on the company’s earnings call, in what would be the first of a few dozen mentions of its deepening tie-in with the French beauty brand that is owned by luxury conglomerate LVMH.

“It is again important to note that while the build out of the Sephora shop-in-shops is at the core of the store remodels, these 200 stores — soon to be 600 by the end of summer — are a representation of the future of Kohl’s,” Gass added, before listing a string of benefits it is seeing at its newly revamped, makeup-centric locations.

All-in on Sephora

Amidst a backdrop of declining group sales, which saw its core Home and Children’s categories slide by 17% and 12%, respectively, for the three months ended April 30, Gass pointed out that the Sephora stores experienced a different reality, including positive comps, incremental growth in basket size, and spill-over buying in other departments by new, younger, more diverse customers.

Sephora customers are not only shopping across the broader Kohl’s store, Gass told analysts, but they are shopping nearly twice as often as its average customer.

“These new transformed stores are working,” Gass said. “They are positively comping, and as we hit critical mass later this summer, the 600 doors [with a Sephora] will have a material impact and enable us to deliver a positive comp in the back half of the year.”

The Sale Progresses

While Gass and the entire, existing 13-member board and management team said they were pleased to have been given shareholder approval last week to carry on in their roles, an overnight federal filing revealed that the company’s chief marketing officer and chief merchandising officer were not on board for the long term and were leaving the company, Reuters reported.

See also: Kohl’s Shareholders Ignore Activist Investor, Retain Board

As for the sale of Kohl’s itself, Gass assured analysts that she and the board are upholding their fiduciary duties to maximize shareholder value, and the company is engaged with multiple interested parties that are expected to submit fully financed binding proposals in the coming weeks.

“[We] are pleased with the number of parties who recognize the value of our business and plan, [and] we will update the market when it’s appropriate to do so,” she said.

While conceding that the year-long activist inquisition had “put some stress on our team,” Gass reiterated her belief that Kohl’s is financially healthy and has the right strategies in place.

“In summary, while the year has started out below our expectations, trends are improving, we are making changes, and the benefits of our key strategic initiatives are still in front of us,” Gass said.