- Kohl's holiday sales disappointed.
- Analysts are questioning the benefits of Kohl's tie-up with Amazon to accept Amazon returns.
But any benefits from accepting Amazon returns in its stores, and all of that expected new customer traffic, are now in doubt after Kohl's released its holiday sales results Thursday.
After announcing the deal in 2017 and testing it in about 100 Kohl's stores, this was the first holiday season that Kohl's accepted returns for items purchased on Amazon in all of its more than 1,150 stores.
Kohl's CEO Michelle Gass was confident the collaboration would drive sales, especially through the end of the year, she told investors.
Gass assured Wall Street analysts, as recently as November, that the Amazon returns would "drive additional traffic into our stores" over the holiday season.
"It's just absolutely critical that we maximize this opportunity right here right now to capture the new customers, especially coming in for the new brands we're launching, all the innovation and then new traffic and new customers who are being introduced to Kohl's for the first time through the Amazon Returns program," she added at the time.
But Kohl's stood out among retailers reporting holiday sales this week for really missing the mark. Wall Street analysts expected sales at Kohl's locations open for at least 12 months to grow, albeit by less than 1%, during the critical fourth quarter — while many of its competitors were projected to see their sales drop.
Department store chain J.C. Penney's holiday sales results were more dismal, but that was largely expected. Macy's also reported a same-store sales decline, but it wasn't as bad as anticipated, sparking a bit of optimism for the company.
Kohl's same-store sales during November and December fell 0.2% — instead of rising by 0.4% as expected — due to weakness in its core women's apparel business, leading it to temper expectations for the year.
The news announced early Thursday sent Kohl's shares tumbling more than 9% in midday trading. The stock is down about 35% from a year ago. Kohl's has a market value of about $7 billion.
"We had expected significant new product launches, incremental traffic from the Amazon returns program and investments to drive sales," Bank of America analyst Lorraine Hutchinson said in a note to clients Thursday morning, following Kohl's report. Now, "we worry [that] Kohl's will need to continue to spend and promote to attract and retain new customers," she said, downgrading the stock to neutral from buy.
Gordon Haskett analyst Chuck Grom lowered his expectations for Kohl's same-store sales in 2020 and 2021, saying the firm continued "be surprised that Kohl's isn't seeing much in the way of a traffic bump from its partnership with Amazon."
In announcing the holiday sales results, Gass said Kohl's is "working with speed to address" the issues in its women's business, but didn't offer any other details on the work it is doing. Grom said Kohl's needs to figure out a fix. Women's apparel is the retailer's largest product category, or roughly 28% of sales, he said.
Kohl's may just need more time to see if its Amazon returns program can bear the fruit that Gass has promised. Shoppers tend to flock to stores at the start of January to return unwanted gifts. And Amazon has already claimed a "record" holiday season, so we know people were shopping there. It's inevitable at least some of those items are going back to where they came from.
If Kohl's is seeing incremental traffic in the new year of people taking back their Amazon purchases, that wouldn't have shown up in its holiday results, but during the remainder of the fourth quarter that ends around the end of this month.
Kohl's is expected to report its fiscal fourth-quarter earnings on March 3 and is scheduled to hold its annual investor meeting March 16.