×

Here's how Under Armour is helping Kohl's become an 'active and wellness' retailer

  • Kohl's says the launch of it selling Under Armour merchandise in its department stores has "exceeded expectations."
  • On Thursday's earnings conference call, management was upbeat about the potential of Kohl's active and wellness business segment to grow in future quarters.
  • Kohl's anticipates learning more about the changes in its customer mix, following the Under Armour launch, in the second and third quarters of 2017.
Under Armour clothing on a display in a sporting good store.
Justin Sullivan | Getty Images
Under Armour clothing on a display in a sporting good store.

For Kohl's, welcoming Under Armour into its stores was the "biggest brand launch" the department store operator has ever had.

"The launch of Under Armour exceeded our expectations, and the launch accelerated our rate of growth in the important active category," Kohl's CEO Kevin Mansell said on Thursday's earnings conference call.

The department store chain only just began selling Under Armour's merchandise — sported by celebrity athletes like Stephen Curry and Tom Brady — in its stores this past March.

"I think by the time we get through the second quarter and into the third quarter, we'll have a much better vision of the positive impact that [the Under Armour] brand has on our [same-store sales] comps," Mansell said.

The CEO has previously guided that the partnership with Under Armour could lift Kohl's comparable sales — a metric closely watched for retail stocks by Wall Street — by as much as 100 basis points, and "nothing has occurred in the launch that would lead us to believe that it would be anything less than that," Mansell said on Thursday.

On the whole, Wall Street was largely disappointed with Kohl's mixed earnings results on Thursday, as the department store chain is still working on shrinking its inventory levels and finding ways to drive more customers into stores, competing against e-commerce players like Amazon.

Even as Kohl's posted a 14 percent jump in adjusted quarterly profit for the period, fueled by higher traffic in stores during March and April, same-store sales declined for the fifth consecutive quarter.

Shares of the stock were falling around 6 percent by late Thursday afternoon.

Analysts who follow Under Armour — many initially hesitant about the Kohl's brand cheapening Under Armour's — are now more upbeat about the partnership's potential, after hearing what the Kohl's CEO had to say on Thursday.

"Under Armour is one of the few brands that matters in the athletic space," Jefferies analyst Randal Konik wrote in a note to clients. "The bears are misplaced, period, as they are ignoring the robust demand for the brand, as evidenced by the strength at [Kohl's]."

More important to Kohl's than the growth of Under Armor alone, though, is the growth of its active business as a whole, CEO Mansell explained.

For example, even with Under Armour's products being sold in stores, Kohl's said sales of Nike-branded merchandise continued on a positive growth trajectory for the quarter, with sales climbing in the high-single digits.

Overall, Kohl's active sales delivered a mid-teen growth rate for the first quarter, compared to a weaker mid-single-digit growth rate a year ago, the company said.

"As you know, we've made a huge bet on active and wellness as a key strategy for future growth. And the fact that deepening our brand offering with Under Armour accelerated the rest of our active business is really important," CEO Mansell told analysts and investors.

"It just tells me that customers are recognizing what's happening at Kohl's in active and wellness, and they're leaning into it, and as they lean into it, you know what happens, suppliers lean into it as well."

Kohl's said Thursday that it's still too early to see how its stores' customer mix has changed as a result of the Under Armour deal.

Between February and April, non-Kohl's Charge purchases jumped almost 900 basis points, the company said, with management citing the Under Armour launch as attributing to the sharp increase. Kohl's Charge is the retailer's version of its own credit card, which is typically used by more loyal customers.

"The Kohl's Charge business has pretty consistently [performed] better but the non-Kohl's Charge business has struggled, and that had a huge improvement," CEO Mansell said of the first quarter of 2017.

KSS 5-day performance 

Read: Kohl's reports first-quarter earnings

Watch: Kohl's CEO on border tax