Kohl’s Says Middle Class and Discretionary Items Struggle with Inflation

With its focus on discretionary products and middle-income consumers, Kohl’s has been hard hit by the current macroeconomic trends, the retailer said Thursday (Nov. 17) during its quarterly earnings call.

“Persistently high inflation continues to dampen consumer spending and our business given our exposure to discretionary categories like apparel and home goods, which are facing disproportionate pressure,” Kohl’s Chief Financial Officer Jill Timm said during the call. “During the quarter, we saw our middle-income consumers continue to purchase fewer items per trip and trade down to our value-oriented private brands.”

During the quarter that ended Oct. 29., the company’s comparable sales were down 6.9% year over year and net sales were down 7.2%, Kohl’s said in a press release.

To meet the new needs of customers during the holiday season and beyond, the company will focus on value-driven messaging and product newness, Kohl’s said in a presentation released in conjunction with the call.

“Knowing how important value is to customers this year, we’re amplifying our value messaging through our holiday brand campaign as well as by featuring our private brands more prominently in our marketing and leaning into our iconic Kohl’s Cash and Kohl’s Rewards programs across key promotional events,” Timm said.

The retailer will also expand Sephora cosmetics shops to all its locations. Kohl’s plans to add 250 more of these store-in-store concepts in 2023, bringing the total to 850, while also unveiling a version with a smaller footprint for the rest of the Kohl’s locations.

Sephora has been a bright spot for Kohl’s. The retailer said in its presentation that Sephora draws new, younger and more diverse customers who shop more frequently. Timm said during the call that Kohl’s locations with Sephora get sales lifts in the mid to high single digits compared to those without shops.

Looking ahead, Kohl’s is not providing guidance and withdrew its prior outlook for the year. Executives attributed this to unpredictable consumer demand trends, macro headwinds and the company’s unexpected CEO transition following the Nov. 8 announcement that former CEO Michelle Gass has moved to Levi Strauss.

“Given our expectation that the challenging environment will continue in the short term, we’re taking actions across multiple fronts to ensure that we are best positioned,” Timm said. “We are planning inventory commitments conservatively, executing expense savings opportunities and reducing capital expenditures. We will do this while continuing to invest in our key future growth initiatives.”

Kohl’s shares were up about 3% Thursday morning, shortly after the earnings call.

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