kohl's store empty parking lot coronavirus

Kohl’s Corp. is taking the next step and starting to reopen after the coronavirus shutdown — but much has changed.

“We expect we’ll be operating differently for quite some time, but we are pleased that we have now begun the rebuilding process,” said Michelle Gass, chief executive officer, on a conference call with Wall Street analysts.

The off-mall retailer now has about half of its more than 1,100 stores open, but social distancing exacted a heavy toll on the first quarter.

Kohl’s net losses tallied $541 million, or $3.50 a share, as sales for the three months ended May 2 dropped 40.6 percent to $2.4 billion. A year earlier, the off-mall retailer posted earnings of $62 million on sales of $4.1 billion.

The retailer closed all of its stores on March 20 and ultimately furloughed 85,000 associates.

As stores reopen, only a portion of the business has returned and the future remains murky.

Gass said: “What I can tell you is that as the stores have been opening, they’ve been doing 50 percent to 60 percent of productivity that we would typically see at this point in time. So there are customers in our stores, and we’re happy about that….As it relates to the balance of the year, I mean, we are planning the business very conservatively. We are in a very uncertain time. There’s a lot that could unfold in the coming months. So we’re taking a very prudent approach to how we’re planning inventory, how we’re planning expenses to navigate through the balance of the year.”

Inventory receipts for the second quarter have been lowered by 60 percent.

But Gass said Kohl’s was able to make some gains online as shoppers stayed home.

Kohl’s digital sales increased 24 percent in the quarter and accelerated to 60 percent growth last month.

“Our stores fulfilled a higher percentage of digital orders, which aided our efforts to reduce in-store inventory,” Gass said. “More than 40 percent of digital orders were fulfilled by ship-from-store and customer pickup during the first quarter.”

But it was home goods that were Kohl’s big online draw although active, beauty, intimates and sleepwear also showed strength. Apparel and footwear lagged overall growth.

Gass said the company’s reinvention of its women’s area would continue.

“While the current environment will pose challenges, we are moving forward with several bold moves. We will exit eight down-trending women’s private brands. These include Dana Buchman, Jennifer Lopez, Mudd, Candies, Rock and Republic, Popsugar, Elle and Juicy Couture.”

At the same time the company is adding new brands, including Lands’ End and Toms, while also continuing to focus on active and beauty.

Kohl’s has taken numerous steps to hold on to its cash and maintain financial flexibility in light of the crisis. The company is keeping inventory receipts “meaningfully lower”; reduced expenses with cuts to marketing, technology, operations and payroll; cut capital expenditures by $500 million, and suspended its share repurchase program and dividend.

The retailer was also able to tap into the financial markets and replaced and increased the size of its revolving loan facility to $1.5 billion and issuing $600 million in bonds due in 2025. Kohl’s, which started the year with $700 in cash on its books, ended the quarter with $2 billion as it built more financial cushion to see it through the future.

But even after COVID-19 passes, somethings might never be the same again.

“We are taking the opportunity to take a step back and look at our business,” Gass said. “I think there’s some tactical changes we’re making. So if you go and visit the store, you’ll see we’ve cleared out spaces like our racetrack design, where we’ve removed a lot of the impulse areas to create more space. And we actually believe it’s creating a better shopping experience for the customer.”

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