Kohl’s(KSS) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales decreased by 5.2% in Q3 2023, with comparable sales down 5.5% [19][70] - Digital sales declined by 16.5%, with digital penetration at 26% [32] - SG&A expenses increased by 1.9% to $1.4 billion, slightly better than expectations [33] - Net income for the quarter was$ 59 million, with earnings per diluted share at $0.53 [50] - Gross margin improved to 38.9%, an increase of 158 basis points year-over-year [70] Business Line Data and Key Metrics Changes - Comparable beauty sales in Sephora shops opened in 2021 and 2022 increased more than 30% compared to last year [20] - Total beauty sales increased more than 70% in Q3, contributing to beauty share gains [20] - Home decor sales outperformed in stores, driven by new categories [36] - Pet business sales increased more than 40% in Q3 [24] - Apparel and footwear showed weakness in cold weather categories, but polished casual and dressy offerings performed well [25] Market Data and Key Metrics Changes - Store sales in the Midwest, Mid-Atlantic, and Northeast regions were down low- to mid-single digits due to weather impacts, while other regions saw low-single-digit increases [14] - The company experienced a divergence in performance based on regional weather conditions affecting demand [14] Company Strategy and Development Direction - The company is focused on four strategic priorities: enhancing customer experience, simplifying value strategies, managing inventory and expenses, and strengthening the balance sheet [2][29] - The company aims to position itself as a gifting destination, expanding the gifting section significantly for the holiday season [35] - The partnership with Sephora is expected to grow into a$ 2 billion business by 2025 [17] - The company is committed to reducing inventory levels and improving inventory turns [65] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a softer demand environment due to weather and macroeconomic pressures but expressed optimism about store performance and strategic initiatives [13][18] - The company expects to see the full impact of its strategic efforts in 2024, with a focus on improving sales momentum [80] - Management is confident in the ability to offset potential regulatory impacts on credit revenue through various initiatives [56][58] Other Important Information - The company ended the quarter with $190 million in cash and cash equivalents, and inventory was down 13% compared to last year [51] - Capital expenditures for the quarter were$ 157 million, with expectations for lower spending in 2024 [52] - The company remains committed to returning capital to shareholders, with a quarterly cash dividend of $0.50 per share [54] Q&A Session Summary Question: What is the path back to positive comps? - Management indicated that 2023 is focused on rebuilding and repositioning the company, with positive store performance providing a foundation for potential positive comps in 2024 [80] Question: Can you provide details on leadership changes? - Management discussed restructuring for closer alignment with store operations to better execute strategic priorities [82] Question: What is the outlook for promotions and merchandise margins? - Management expects a promotional environment during the holiday season, which is factored into guidance [90] Question: How is the Sephora partnership performing? - The Sephora partnership is driving significant traffic and sales, with 30% of customers being new to Kohl's [86][106] Question: What are the expectations for inventory management moving forward? - Management emphasized the importance of inventory management, aiming for increased inventory turns and a more agile approach to inventory levels [98][145]