Updated 4:34 p.m. EST Nov. 26
Ashley Buchanan has his work cut out for him as the next chief executive officer of Kohl’s Corp.
In its last report to Wall Street before Buchanan steps in for current CEO Tom Kingsbury in January, the company turned in steep bottom- and top-line declines for the third quarter.
Net income fell 63 percent to $22 million, or 20 cents a diluted share, down from $59 million, or 53 cents, a year earlier. Sales for the quarter ended Nov. 2 declined 8.8 percent to $3.5 billion with a 9.3 percent drop in comparable sales.
Related Articles
EPS came in 7 cents below the 27 cents analysts projected and revenues were more than $200 million below expectations.
You May Also Like
Investors — reacting to both the CEO switch late Monday and the earnings report — sent shares of Kohl’s down 17 percent to $15.22 on Tuesday.
On a conference call with analysts, retail veteran Kingsbury said he signed up for two years as CEO, a term that would have ended in May.
“I came in to help out the company in the transition,” he said. “It’s not an exact science in terms of hiring somebody. We are fortunate to have Ashley come and decide to join us. And this is the way the timing worked out overall.”
The CEO said Buchanan is “very much aligned with the strategy that we have in place right now. He spent a lot of time with our board of directors, time with me. As always, there will be some changes and modifications and he’ll want to obviously put his fingerprints on the strategies and what you would expect.”
Buchanan has been CEO of craft store Michaels Cos. for four years and before that spent 13 years rising up through the ranks at Walmart Inc.
One area where he will have to dig in is apparel, which represents the lion’s share of Kohl’s business.
Kingsbury, a former CEO of off-pricer Burlington Stores Inc., said the third quarter was “frankly disappointing” as growth areas — including Sephora, home decor and Babies “R” Us shops — did not offset declines in apparel and footwear.
The CEO said Kohl’s “undervalued the short-term impact” of the initiatives taken to grow the business.
The result was a decline in consumer traffic, not enough inventory in private label apparel and key value items and lost traction in areas like jewelry, petites and intimate apparel.
On private brands in particular, Kingsbury said: “Over the past 18 months, we have managed inventory very tightly, largely driven by new processes implemented by operating with more open-to-buy liquidity and clearing goods on a more regular basis. At the same time, we increased our inventory investments in our key growth categories such as Sephora, home decor, gifting and impulse. And we have also brought in a significant number of new market brands to capitalize on trend-right merchandise.
“Together, these investments led to meaningfully lower receipt levels in the private apparel brands, which our customers rely on,” he said. “In the third quarter, private brand inventory decreased more than 20 percent as compared to the prior year and for several of our key brands, it decreased even more. Given the importance of opening price points in the current environment, not having the appropriate level of private brands hurt our ability to serve our customers. This had an outsized impact in our women’s business where we have the highest private brand penetration.”
Kohl’s is working to rush goods to the selling floor for the holiday season, but it won’t be enough to save the year from declines.
For the full year, Kohl’s expects sales to fall by 7 percent to 8 percent. And earnings per share are slated to drop to $1.20 to $1.50 — below both the $1.84 analysts had penciled in and the $2.85 registered a year ago.