Kohl’s Cuts Outlook After Seeing Weakened Demand Among Consumers

Kohl’s Corp. cut its outlook for the year after reporting a hit to its business in Q2 from macroeconomic headwinds.

Kohl’s CEO Michelle Gass said inflation and weaker consumer spending, especially among middle-income customers, impacted the company’s results in the quarter.

Gass noted that consumers are making fewer shopping trips and spending less overall, especially in discretionary categories. This slowdown, Gass said, has disproportionately impacted Kohl’s, where apparel is a key category for the department store retailer.

Overall, the Menomonee Falls, Wis.-based retailer reported net income of $143 million, or $1.11 per share, ahead of analysts’ expectations of $1.03. Revenue was down 8.5% to $4.09 billion, compared to the $3.85 billion expected.

Kohl’s downgraded its outlook and now expects net sales to decline in the range of 5% to 6% in fiscal year 2022. Earnings per share are now expected to be between $2.80 and $3.20.

Kohl’s shares fell in premarket trading and were down when markets opened as well.

Like other retailers, Kohl’s is grappling with excess inventory that resulted from weakened demand for items outside of grocery and essentials. Inventories at Kohl’s increased 48% in Q2 compared to last year. To manage this excess, Kohl’s said it is utilizing “dynamic inventory allocation” and focusing on “productive categories.”

Specifically, Gass said the retailer has increased promotions and pulled back on receipts.

“We have adjusted our plans, implementing actions to reduce inventory and lower expenses to account for a softer demand outlook,” Gass said in a statement. “Kohl’s has navigated difficult periods in the past and I am confident in our ability to successfully manage through the current uncertainty.”

Just this week, Target and Walmart reported similar inventory challenges. Walmart CFO John Rainey said the company has “canceled billions in orders” to deal with inventory pileups that have amassed over the last few quarters. And Target said it has reduced its “inventory exposure in discretionary categories” throughout Q2 by canceling more than $1.5 billion of orders in these categories and marking down products.

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