Kohl’s beats expectations as inventory levels improve

Kohl’s Corp second-quarter profit exceeded the average analyst estimate as inventory levels fell, suggesting that efforts to clear excess merchandise are showing results. 

Chief Executive Officer Tom Kingsbury, who officially started in the role in February, has been working to manage inventories and cut costs to bolster performance. In the most recent period, Kohl’s added 200 Sephora at Kohl’s shops and the company is further optimising its assortment, he said.

“Many of our strategic efforts are just underway, which we expect will contribute incrementally in the back half of the year, and even more so in 2024 and beyond,” Kingsbury said in a statement.

Shares were up less than 1% in Wednesday premarket trading.

Adjusted earnings per share of 52 cents in the second quarter were well above analyst expectations for 23 cents. Comparable sales, a key measure of growth for retailers, were down 5%, missing forecasts.

“Unfortunately, good operational control provides only the foundation for success,” Neil Saunders, managing director at GlobalData Plc, wrote in a note. “It needs to be accompanied by a strong sales performance. On this front, we still find Kohl’s wanting.”

Gross margin of 39% was in line with the prior period as the retailer cleared excess merchandise. While inventory declined 14% in the second quarter.  

Apparel companies and department stores are facing looming macroeconomic challenges including the end of student loan forbearance this fall. That’s resulted in cautious outlooks for the full year across the consumer category. Kohl’s reaffirmed full-year guidance, which expects sales to decline as much as 4%.

That said, brands that resonate with consumers have proven resilient. Abercrombie & Fitch Co. and Urban Outfitters Inc. both posted sales growth that exceeded expectations in the most recent quarter.