Financial Performance

Lower Inventories Boost Kohl’s Q4 Margins

But the retailer's net sales declined for a fourth straight quarter due to declining traffic in its brick-and-mortar stores.
Matthew HellerFebruary 23, 2017
Lower Inventories Boost Kohl’s Q4 Margins

Kohl’s sales fell in the fourth quarter amid declining traffic in its brick-and-mortar stores but profit beat analysts’ estimates due to lower inventories.

The retailer reported Thursday that total sales dropped 2.8% to $6.21 billion and same-store sales declined 2.2% for the three months ended Jan. 28, 2017. It was the fourth straight quarterly decline in net sales.

Kohl’s net income fell about 15% to $252 million, or $1.44 per share, but topped average Wall Street estimates of $1.33 per share. Gross margin improved to 33.4% from 33.1%.

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According to Kohl’s, the sales results were driven by declines in brick-and-mortar traffic and offset somewhat by strength in online demand. “We saw improvement in merchandise margin, and our team continued to manage inventory and expenses extremely well,” CEO Kevin Mansell said in a news release.

Håkon Helgesen, analyst at GlobalData Retail, noted that sales were weak even though Kohl’s “was up against a soft set of comparatives.” The declines, he added, “are sequentially worse than the prior quarter and mean that Kohl’s has posted negative numbers across every quarter of this fiscal [year].”

Reuters said Kohl’s lower inventories meant it did not have to discount deeply to get rid of unsold holiday stock as it had to in previous years. Inventories per store were down about 5% at the end of the fourth quarter, compared to a 5.7% increase in the year-earlier period.

“We’ve really dramatically reduced inventories this year so our clearance levels and fall transitional inventories are way down compared to last year,” Mansell said on an earnings call.

For the full fiscal year, comparable stores sales slid 2.4%, while total sales fell 2.7% to $18.68 billion. Net income was down 17%, at $556 million.

The company expects the launch of a line of Under Armour sportswear products in March to boost full-year comp sales by as much as 1 percentage point, but it is still forecasting that those sales will be in the range of flat to down 2%, while net sales could fall as much as 1.3% or grow as much as 0.7%.