Kohl’s Says Consumers Are Balking at Inflation

“Their wallets are being squeezed and so they’re coming into the store and they’re being a bit more mindful of the brands they are buying and what is going in their basket,” Kohl’s finance chief

Jill Timm

told analysts Thursday.

The results are the latest warning sign this week on the retail environment, sparking a major selloff of shares across the sector. Large retailers, including

Target Corp.

TGT -5.06%

and

Walmart Inc.,

WMT -2.74%

are increasing their sales at rates far slower than they did during the height of the pandemic, and now profits are falling on higher costs.

Shoppers are also switching from discretionary purchases to lower-margin items like groceries and other household staples, pressuring company profits. Home-improvement chains

Home Depot Inc.

and

Lowe’s

Cos. are seeing transaction counts fall, but revenue is being supported by higher prices for items across their stores.

Kohl’s Chief Executive

Michelle Gass

said the company is confident in its strategies to turn around the business despite the soft first-quarter results. She said the company is “pleased with the number of parties who recognize the value of our business” and that it is financially healthy. Kohl’s has already fielded offers from bidders including the private-equity firm Sycamore Partners and Canada’s Hudson’s Bay Co., The Wall Street Journal has reported.

Kohl’s shares gained more than 4% in Thursday trading. The stock is down about 9% year to date.

The sale process came after Kohl’s rejected a $9 billion takeover offer from a group of activist investors in February as being too low and adopted a so-called poison pill to prevent them from buying up more than 10% of the company.

The earnings report comes days after the company won a proxy battle, as shareholders backed Kohl’s slate of directors over an activist’s push to replace up to 10 of the 13 board members.

Kohl’s said it had already incurred $17 million of expenses related to the proxy contest and ongoing sales process.

Some executives are leaving the company through the tumult. In a regulatory filing late Wednesday, Kohl’s said that its chief merchandising officer,

Doug Howe,

is departing, and that Chief Marketing Officer

Greg Revelle

will be stepping down in June.

The duo will be replaced on an interim basis by internal vice-presidents Ron Murray and Christie Raymond while a wider executive search was conducted, the company said.

For the quarter ended April 30, Kohl’s reported earnings of $14 million, flat with the prior year. Per-share earnings came in at 11 cents. Analysts had been expecting 69 cents a share, according to FactSet.

The company is now expecting no more than 1% growth in net sales for the year, after previously forecasting a rise of between 2% and 3%. It also expects annual earnings to be between $6.45 and $6.85 a share, marking a 60 cents per share reduction from the midpoint of its previous guidance.

Write to Dean Seal at [email protected]

Corrections & Amplifications
Kohl’s said it incurred $17 million of expenses related to the proxy contest and ongoing sales process. An earlier version of this article listed the expense at $70 million. (Corrected on May 19)

“Their wallets are being squeezed and so they’re coming into the store and they’re being a bit more mindful of the brands they are buying and what is going in their basket,” Kohl’s finance chief

Jill Timm

told analysts Thursday.

The results are the latest warning sign this week on the retail environment, sparking a major selloff of shares across the sector. Large retailers, including

Target Corp.

TGT -5.06%

and

Walmart Inc.,

WMT -2.74%

are increasing their sales at rates far slower than they did during the height of the pandemic, and now profits are falling on higher costs.

Shoppers are also switching from discretionary purchases to lower-margin items like groceries and other household staples, pressuring company profits. Home-improvement chains

Home Depot Inc.

and

Lowe’s

Cos. are seeing transaction counts fall, but revenue is being supported by higher prices for items across their stores.

Kohl’s Chief Executive

Michelle Gass

said the company is confident in its strategies to turn around the business despite the soft first-quarter results. She said the company is “pleased with the number of parties who recognize the value of our business” and that it is financially healthy. Kohl’s has already fielded offers from bidders including the private-equity firm Sycamore Partners and Canada’s Hudson’s Bay Co., The Wall Street Journal has reported.

Kohl’s shares gained more than 4% in Thursday trading. The stock is down about 9% year to date.

The sale process came after Kohl’s rejected a $9 billion takeover offer from a group of activist investors in February as being too low and adopted a so-called poison pill to prevent them from buying up more than 10% of the company.

The earnings report comes days after the company won a proxy battle, as shareholders backed Kohl’s slate of directors over an activist’s push to replace up to 10 of the 13 board members.

Kohl’s said it had already incurred $17 million of expenses related to the proxy contest and ongoing sales process.

Some executives are leaving the company through the tumult. In a regulatory filing late Wednesday, Kohl’s said that its chief merchandising officer,

Doug Howe,

is departing, and that Chief Marketing Officer

Greg Revelle

will be stepping down in June.

The duo will be replaced on an interim basis by internal vice-presidents Ron Murray and Christie Raymond while a wider executive search was conducted, the company said.

For the quarter ended April 30, Kohl’s reported earnings of $14 million, flat with the prior year. Per-share earnings came in at 11 cents. Analysts had been expecting 69 cents a share, according to FactSet.

The company is now expecting no more than 1% growth in net sales for the year, after previously forecasting a rise of between 2% and 3%. It also expects annual earnings to be between $6.45 and $6.85 a share, marking a 60 cents per share reduction from the midpoint of its previous guidance.

Write to Dean Seal at [email protected]

Corrections & Amplifications
Kohl’s said it incurred $17 million of expenses related to the proxy contest and ongoing sales process. An earlier version of this article listed the expense at $70 million. (Corrected on May 19)