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Department store chain Kohl’s cut its annual sales and profit forecasts after posting a surprise quarterly loss on Thursday. Weaker consumer demand for its apparel and footwear dragged its shares down as much as 26% in early trading.
American shoppers still prioritize essential purchases over discretionary products like apparel, electronics, and home goods as they face dwindling pandemic-era savings and higher interest rates.
Economic Pressures on Middle-Income Shoppers:
Chief Executive Officer Tom Kingsbury said on a post-earnings call that Kohl’s middle-income customers’ discretionary spending continues to be pressured by a number of economic factors, including high interest rates and inflation, while it has remained steady among high-income customers.
The department store chain’s dismal quarterly report contrasts with some of the other retailers, including Abercrombie, which reported strong first-quarter sales owing to its more on-trend merchandise.
Reliance on External Brands:
“Kohl’s has been too reliant on other brands such as Sephora, Amazon, and now Babies R Us to drive traffic rather than distinguishing its core brand identity,” Emarketer senior analyst Zak Stambor said.
He added that shoppers are willing to spend if they see value in an on-trend, well-made dress from Abercrombie or a healthy salad from Sweetgreen.
Impact of Lower Clearance Sales:
Kohl’s also said that lower clearance sales than last year resulted in a more than 600-basis-point drag on comparable sales that decreased 4.4% in the first quarter.
The company forecasts fiscal 2024 net sales to fall between 2% and 4%, compared with its previous expectation of a 1% drop and a 1% rise. It also expects annual earnings per share in the range of $1.25 to $1.85, compared with its previous forecast of $2.10 to $2.70.
First Quarter Financial Results:
According to LSEG data, the company reported a per-share loss of 24 cents in the first quarter, while analysts predicted a profit of 4 cents per share.
Kohl’s was trading at $20.38 and was on track for its worst day ever, while its peers Macy’s and Nordstrom Inc, reporting later today, were down about 3% each.
