Kohl's shares tank on dismal holiday sales results, lowered outlook

Key Points
  • Kohl's said same-store sales declined 0.2% during November and December.
  • The retailer is now targeting the low end of a previously issued full-year profit outlook.
  • Kohl's said its women's business struggled during the holidays.
Shoppers enter a Kohl's store in Peoria, Illinois.
Daniel Acker | Bloomberg | Getty Images

Kohl's said same-store sales during November and December fell 0.2% due to weakness in its core women's apparel business, leading it to temper expectations for the year.

Based on the dismal holiday performance, Kohl's said in a press release that it is now calling for fiscal 2019 diluted earnings per share to be at the "low end" of a previously announced range of $4.75 to $4.95. In November, when it last reported quarterly earnings, the company cut its annual profit forecast to $4.75 to $4.95 per share from $5.15 to $5.45.

The news sent Kohl's shares tumbling 8% in midafternoon trading. As of Wednesday's market close, Kohl's stock had dropped about 28% over the past 12 months. Kohl's has a market value of $7.7 billion.

"We are managing the business with discipline and we expect to deliver on our earnings guidance for the full year," CEO Michelle Gass said in a statement. During the holidays, Kohl's was more pleased with its performance in active, beauty and children's divisions, as well as footwear and men's, she added.

Gass said Kohl's is "working with speed to address" the issues in its women's business

Kohl's has been expected by analysts to deliver same-store sales growth during the fourth quarter, which includes the holiday season, of 0.4%.

"It's going to be hard to find a positive development out of today's holiday update from [Kohl's]," Gordon Haskett analyst Chuck Grom said.

The announcement follows one from rival Macy's a day earlier, in which Macy's said its holiday same-store sales dropped 0.6%. The decline wasn't as bad as many had feared, sending Macy's shares higher on the news. CEO Jeff Gennette said Macy's saw "a strong trend improvement from the third quarter," igniting some optimism for the retailer's turnaround plans.

Still, on the whole, department stores are expected to have underperformed during the 2019 holiday season.

The category of retailers that includes J.C. Penney, Macy's and Nordstrom, saw overall sales decline 1.8% from Nov. 1 through Dec. 24, according to Mastercard Spending Pulse, which tracks retail spending across all payment methods.

More shoppers are expected to have turned to retailers like Target and Walmart — which aren't at traditional malls — for apparel, electronics and other gifts. Many rung up purchases on Amazon as well. The e-commerce giant has already said 2019 was a record holiday.

Kohl's has teamed up with Amazon, however, to accept returns of items purchased on Amazon at all of its stores. To try to reap any benefits, it offers discounts when people use the service. This past holiday season was the first in which the partnership was live at all of Kohl's stores nationwide.

A tie-up with Amazon was expected to be a boon to traffic for Kohl's. But some say that is still not showing up.

"We continue to be surprised that Kohl's isn't seeing much in the way of a traffic bump from its partnership with Amazon," Grom said in his note to clients.

Bank of America analyst Lorraine Hutchinson echoed this sentiment in her downgrade of Kohl's shares to neutral from buy.

"We had expected significant new product launches, incremental traffic from the Amazon returns program and investments to drive sales to fuel outsized comps vs. peers," Hutchinson said.

However, she added, the holiday sales decline suggests the Amazon partnership and new product launches aren't enough to offset secular headwinds, and suggests trends could remain weak in the coming year.

"We worry [that] Kohl's will need to continue to spend and promote to attract and retain new customers," she said.

Kohl's is expected to share more details regarding its holiday results when it reports quarterly earnings on March 3. It is also holding a meeting with investors on March 16.

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