Kohl's Corp (KSS) Q4 2024 Earnings Call Highlights: Navigating Sales Declines and Strategic ...

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Net Sales Decline: 9.4% decrease in Q4; 7.2% decrease for the year.
Comparable Sales: Decreased 6.7% in Q4; 6.5% for the year.
Store Comparable Sales: Declined 3.1% in Q4; down 5.6% for the year.
Digital Sales: Declined 13.4% in Q4; down 8.7% for the year.
Gross Margin: 32.9% in Q4, an increase of 49 basis points; 37.2% for the year, an increase of 50 basis points.
SG&A Expenses: Decreased 4.5% in Q4; 3.7% for the year.
Adjusted Net Income: $106 million in Q4; $167 million for the year.
Adjusted Earnings Per Share: $0.95 in Q4; $1 for the year.
Store Closures: 27 underperforming stores and 1 e-commerce fulfillment center closed.
Operating Cash Flow: $596 million in Q4; $648 million for the year.
Capital Expenditures: $99 million in Q4; $466 million for the year.
Inventory: Up 2% compared to last year.
2025 Guidance - Net Sales: Expected decrease of 5% to 7% versus 2024.
2025 Guidance - Comparable Sales: Expected decrease of 4% to 6%.
2025 Guidance - Operating Margins: Expected to be in the range of 2.2% to 2.6%.
2025 Guidance - Earnings Per Share: Expected to be in the range of $0.10 to $0.60 per diluted share.
2025 Capital Expenditures: Expected to be in the range of $400 million to $425 million.
Dividend Reduction: Quarterly cash dividend reduced to $0.12.50 per share.

Warning! GuruFocus has detected 8 Warning Signs with KSS.

Release Date: March 11, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Kohl's Corp (NYSE:KSS) has a solid foundation with over 1,100 stores serving more than 60 million customers, including 30 million loyalty members.
The company is focusing on offering a curated, balanced assortment to fulfill customer needs, which includes refocusing on categories like fine jewelry and proprietary brands.
Sephora continues to be a strong sales driver, with beauty sales increasing by 13% in the fourth quarter.
Kohl's Corp (NYSE:KSS) is working on enhancing its omnichannel platform to deliver a frictionless shopping experience, aiming for consistency across all channels.
The company has a strategic plan for supply chain diversity, which has been beneficial in maintaining product assurance and agility.

Negative Points

Net sales declined by 9.4% in Q4 and 7.2% for the year, with comparable sales decreasing by 6.7% in Q4.
The digital business underperformed, with a 13.4% decline in comparable sales during Q4, partly due to an online inventory suppression issue.
Kohl's Corp (NYSE:KSS) experienced a decrease in credit revenue due to lower revolving credit balances and lower late fees.
The company announced the closure of 27 underperforming stores and one e-commerce fulfillment center, resulting in a one-time charge of $76 million.
The guidance for 2025 indicates a continued decline in net sales, with expectations of a 5% to 7% decrease compared to 2024.

Q & A Highlights

Q: Could you talk us through your assessment of what has been working, what hasn't been working with the merchandising strategy, and what gives you confidence that Kohl's can return to growth? A: Ashley Buchanan, CEO: I saw opportunities in product offerings, value, quality, store operations, and omnichannel experiences. Many issues were self-inflicted, but we have a loyal customer base and dedicated associates. Short-term tactical changes are underway, focusing on proprietary brands and omnichannel improvements. Long-term strategies are still being developed.

Q: What are the implications from a margin perspective as you aim to elevate the quality of private brands while broadening brand inclusion with promotional offers? A: Ashley Buchanan, CEO: We are focusing on proprietary brands, which resonate with customers and offer better margins. We aim to balance national and proprietary brands, optimizing promotions and markdowns. The mix of excluded brands from coupons has been too high, impacting perceived value. Adjustments will take time as we have already bought inventory through Q3.

Q: How do you think of the store base, and what are you looking for in terms of size and number? A: Ashley Buchanan, CEO: Most stores are profitable, especially our main 80,000 square foot prototype. We evaluate our store base annually and see opportunities in optimizing space allocation and adjacencies. The smaller format stores are still a work in progress, but our larger stores remain highly productive.

Q: What steps are you taking to regain traction with lost customers, and is there a cost associated with that? A: Ashley Buchanan, CEO: We need to make changes first, such as enhancing proprietary brands and reintroducing categories. We have a large customer database to reach out to, and while there may not be significant incremental costs, it will take time to regain customer trust. We must ensure changes are in place before communicating them to customers.

Q: Could you speak to the process of reversing brand exclusions on the coupon program? A: Ashley Buchanan, CEO: We are evaluating every brand. Some large national brands will remain excluded, but many brands were excluded unilaterally over the years. We are looking to reverse these exclusions, as they have added up and impacted customer perception. This process doesn't require extensive brand conversations, as many brands did not request exclusion.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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