Kohl’s beats profit estimates on cost cuts, leaner inventory

Kohl’s Corp (KSS.N) beat estimates for quarterly profit on Wednesday, as leaner inventories, lower costs and fewer discounts helped the department store chain counter a broader retail slowdown.

Shares of Kohl’s, which fell more than 10 per cent on Tuesday, were up 2 per cent in premarket trading as the company joined peer department store operator Macy’s (M.N) to back its 2023 forecasts.

The company is in the midst of a turnaround under the watch of new CEO Tom Kingsbury, who has made leaner inventories and targeted discounts his top priority.

“Many of our strategic efforts are just underway, which we expect will contribute incrementally in the back half of the year, and even more so in 2024 and beyond,” said Kingsbury.

Inventory declined 14 per cent during the quarter as Kohl’s undertook stock clearance, leading to a 61 basis points drop in gross margin.

“It managed to sell more excess inventory and reduced its expenses, which helped it beat expectations,” Insider Intelligence analyst Zak Stambor said.

Retailers are trying to keep their inventories tight with the right kind of product mix as they head into the second half of the year, which includes the crucial holiday spending season.

“While Kohl’s is still in the early innings of its turnaround plan, it appears to be moving in the right direction,” Stambor said.

The company earned 52 cents per share in the second quarter ended July 29, above analysts’ estimates of 22 cents.

Still, comparable sales fell by a steeper-than-expected 5 per cent compared to analysts’ estimate of a 4.43 per cent fall, according to Refinitiv IBES data.

The retailer maintained its forecast for per-share earnings of $2.10 to $2.70 and a drop in net sales of 2 per cent to 4 per cent for fiscal 2023.