Kohl’s Corp. is looking for a new face, not a new plan, as it searches for its next chief executive officer.
The company, which pulled its outlook for the year on Thursday and pointed to a sharp slowdown in consumer spending over the past month, has been in the market for new leadership since CEO Michelle Gass was named president and future CEO Levi Strauss & Co. last week.
Peter Boneparth, the Jones Apparel Group veteran who is independent chair at Kohl’s, told analysts on a conference call that operating without an explicit profit and sales promise would give interim CEO Tom Kingsbury “the latitude in the fourth quarter to execute on our basic strategy.”
That strategy, he said, was “to drive value and sales during a very promotional environment.”
Kohl’s saw its business soften in late October and early November and pinned the shift to a later start to the holiday season compared with last year, when shoppers were racing to get goods amid inventory shortages and supply chain backups.
While those moves changed the complexion of Kohl’s, financial results lagged and the company — as well as Gass and Boneparth — were dogged by activist investors pushing for bigger changes.
Now at an inflection point, Boneparth said the retailer would stay the course.
“We’re not looking for a CEO who’s coming in to change the strategy that we’ve embarked on,” the independent chair said. “What we are looking for is a very strong operator, somebody who can drive sales, somebody who can drive earnings per share…somebody who understands the basic tenants behind the Kohl’s value proposition and the brand strategy.”
In the meantime, the company is navigating an extremely uncertain landscape.
Boneparth said: “I’ve been doing this a long time, as have many members of our board as has Jill [Timm, senior executive vice president and chief financial officer], and I would say that the visibility for the fourth quarter has been as difficult as any period I could remember.”
“On the one hand, you had last year where nobody had an inventory,” he said. “As a result, all customers were inclined to buy early and so you had these big numbers early in the quarter, so people had a lot of conviction.
“Now you flip over [to this holiday season], everybody has a lot of inventory…and then we saw this pronounced slowdown in October going into November. Was that consumer behavior? Was that weather? Was that the elections? I don’t think anybody really knows. It’s probably a combination of all of those three factors.”
Kohl’s third-quarter net income fell by 60 percent to $97 million, or 82 cents a diluted share, down from $243 million, or $1.65, a year ago. EPS came in as the company projected last week, but analysts had been bracing themselves for even steeper declines and had 78 cents penciled in — 4 cents worse than the final result.
Revenue for the three months ended Oct. 29 decreased 7 percent to $4.3 billion from $4.6 billion.
In August, Kohl’s updated its annual outlook, noting that sales would decline by 5 to 6 percent with adjusted EPS of $2.80 to $3.20, but that target has been taken off the table.
Investors seemed comforted by the update, despite its ominous reading of the consumer. Shares of Kohl’s increased 5.4 percent to $31.42, leaving the company with a market capitalization of just $3.7 billion.
Timm told analysts: “Persistently high inflation continues to dampen consumer spending and our business, given our exposure to discretionary categories like apparel and home goods, which are facing disproportionate pressure.
“During the quarter, we saw our middle-income customers continue to purchase fewer items per trip and trade down to our value-oriented private brands,” the CFO said. “From a channel perspective, store sales outperformed digital and improved sequentially in Q3 due in part to having more Sephora shops open and our investment in labor to enhance execution across the store.”
The company’s digital sales, which accounted for 29 percent of the total, slipped 8 percent for the quarter, but were still up 20 percent compared with before the pandemic.
While Kohl’s customer is certainly being squeezed, the market, which has grown much more promotional, is also coming into a sweet spot for the retailer.
“As we move into holiday, it’s always promotional,” Timm said. “It’s something that Kohl’s has thrived in over the years as we know how to be promotional. We know how to lean in and out. And I think the agility that we have today is a new muscle that you haven’t seen in years past. So we’re going to be able to make those moves much more quickly, dependent on what we’re seeing from a consumer perspective.”