Kohl’s Future Looks Bright And Profitable

Michelle Gass, CEO of Kohl’s together with her senior staff met virtually with retail analysts to discuss the future of the company. Assembled with the CEO was the Chief Merchandise Officer Doug Howe, Chief Marketing Officer Greg Revelle, Chief Technology Officer Paul Gaffney, and the Chief Financial Officer Jill Timm.

Let me assure any activist trying to unseat management that the executives were very competent with exciting ideas. They spoke as a team, which means that they are working together and they are fighting for greater share of market. I feel that they will be successful in their new projects.

Growth of the company is based on several factors. Sephora looms large with high expectations that they will produce strong sales (estimated at $2 billion) and be inviting to a younger customer. There have been 200 Sephora Shops at Kohl’s installed last year, there will be 400 Sephora shops installed by the end of the second quarter of this year, and next year there will be at least 250 more Sephora units installed in the first half of the year. That’s 850 but there was a strong hint by management that the Sephora shop count may be higher than planned.

In the next four years management expects to open 400 mini-Kohl’s. These stores will be a miniaturization of the standard 85,000 to 90,000 square foot Kohl’s units. Their size will be about 35,000 square feet in size, and the assortment will have to have been edited to reflect a personalization in the stores. They will be easy to locate in urban areas. Obviously, management has seen some of the Target stores that have sprung up in urban areas, and since the pandemic forced a lot of stores to close, good locations are available nationwide. Management started in Seattle with a test unit and expects to open 25 mini-Kohl’s this year and the next three years. It is a great move but one that does not reflect conviction of management. If it is such a good idea, one could visualize an acceleration of opening mini-Kohl’s to positively impact the income statement. These stores must reflect the taste of the area they serve, since they cannot carry a broad assortment. Frankly, if the mini-Kohl’s are as good as they sound, I would have projected more units by the final year of the four-year plan.

While many new brands have a home at Kohl’s from Eddie Bauer, Tommy Hilfiger, Calvin Klein, Under Armour Champion and others which help managements drive for an active wear customer who likes the brand names. I find the merchandising up-to date and exciting. I admire the partnership with Amazon who have added customer traffic into the stores. Amazon’s merchandise can be returned in any Kohl’s location, and I think the mini-`Kohl’s will be a big support in that drive. In order for customers to be incentivized to shop at Kohl’s they will get a $5 coupon they can redeem if they shop when they return something.

The virtual investor’s day was well organized and reflected managements desire to communicate clearly Kohl’s drive. Similar to Best Buy’s virtual earnings discussion with analysts, there was direct contact. I hope more companies will resort to the virtual presentation method.

Retail results for the 4^th quarter were above expectations. Sales increased 5.8% to 6.5 billion and increased 22.9% to 19.4 billion in the full fiscal 2021 year. Earnings were $2.20 in the quarter compared to $2.22 in 2021 and $7.33 in the full fiscal year 2022 compared to $0.21 in fiscal 2021.

POSTSCRIPT: There was scant mention of the disruption in stores to accommodate Sephora in the stores. It must have been a real exercise for customers and associates to find what they were looking for in stores that were being renovated. The strength of the sales under these circumstances are laudable.