A surprise loss in Q4 2022 put Kohl’s newly confirmed CEO Toms Kingsbury in the hot seat as the company continues to grapple with declining sales and pressure from activist investors.
Steep discounts lead a more than 10 percentage point decline in Q4 gross margins to 23%, with net sales down 7.2% and comparable store sales down 6.6%. Digital sales, which made up 37% of total sales in Q4, also declined 12% year-over-year.
Kingsbury attributed the disappointing numbers to the difficult macroeconomic environment, saying on an earnings call that while he is “confident that we have the right plans, organizational structure and team in place to drive improved, more consistent sales and earnings performance over the long term,” it “won’t happen overnight.”
Maybe not even in 2023, if the company’s outlook for the year is any indication. Kohl’s said it is anticipating 2023 net sales to decline between 2% and 4% leading Kingsbury to characterize 2023 as a “transitional year” for the company.
One bright spot in the Q4 results was the retailer’s expanding partnership with Sephora, cementing Kohl’s “positioning as a major player in the beauty industry,” said Kingsbury. Nearly 8 million customers purchased beauty products in Sephora at Kohl’s shops last year, and Kohl’s total beauty sales increased 90% in Q4 as the concept continued to roll out chainwide. The company already has Sephora at Kohl’s in place at 600 locations and plans to open another 250 by this summer. An additional 50 smaller-format Sephora shops will be open by the end of this year, with chainwide rollout set to be complete by 2025, said Kingsbury.
Other areas of focus as the company continues its turnaround efforts include enhancing the customer experience, simplifying its value strategies and better managing inventory. The company plans to up its presence in the casual and career wear categories, further expanding its women’s dress assortment in particular, and will also look to other categories where it is underpenetrated, including home and gifting.
Kingsbury also pointed to the strength the company’s digital business, which accounts for more than 30% of sales annually. “Two of our key digital growth initiatives include expanding Kohl’s Marketplace and Kohl’s Media Network,” he said. “Kohl’s Marketplace is broadening our product offering online to capture incremental sales opportunities, and Kohl’s Media Network is leveraging our digital platform and site traffic to partner with more of our key brands and capture more advertising dollars.”
Whether all this will be enough to keep the company’s very vocal activist investors happy is up in the air, but it should help that Kingsbury is backed by two of them, Macellum Advisors and Ancora Holdings, which were also reportedly behind the departure of previous CEO Michelle Gass.