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Kohl’s Plans to Open 100 New Smaller-Format Stores Over Four Years

Kohl’s is looking to diversify its store fleet.

The department store retailer announced on Monday a plan to open more than 100 new smaller-format Kohl’s stores over the next four years. The news was announced along with updated financial targets and goals for the company’s shop-in-shop Sephora business ahead of the retailer’s investor day.

Focusing on smaller stores could help Kohl’s leverage its existing consumer base and attract more shoppers with services such as buy online, pick up in-store, as well as self check-out. Kohl’s currently operates more than 1,100 stores across the U.S.

Other department store retailers have also announced plans for smaller, more-efficient store locations in recent years. Target last week announced a plan to open 30 small-format to midsize locations across city centers in the U.S. throughout 2022, to further engage with consumers in various neighborhoods. Macy’s has tested a similar strategy via its smaller-format Market by Macy’s concept stores in Texas.

“We’re evolving our position from a department store,” said Kohl’s CEO Michelle Gass in a call with investors on Monday. She added that smaller-format stores give the company the chance to enter a market that could not support full-size store locations. They also allow Kohl’s to roll out localized experiences that reflect consumer preferences in different markets.

In addition to the new store announcement, Kohl’s said it plans to expand the company’s Sephora shop-in-shop business from 200 to 850 stores and grow it to a $2 billion business. The company expects low-single-digit percentage sales growth in 2022, with mid- to high-single-digit percentage growth in EPS.

The announcement comes as Kohl’s faces mounting pressure from activist investors that have been publicly critical of Kohl’s management for months. Macellum Advisors, which owns nearly 5% of shares at Kohl’s, said on Friday that it is skeptical about the future of Kohl’s, given its current board of directors and performance compared with retail peers. Last month, Macellum said that it would nominate 10 candidates for election to the company’s board of directors at the annual shareholder meeting this year.

Macellum has also asked Kohl’s to consider taking an offer to sell its business and previously sent an open letter calling out Kohl’s for “mismanaging” the business and “failing to implement necessary operational, financial and strategic improvements.” Kohl’s rejected the offers to acquire the company and said they did “not adequately reflect the company’s value in light of its future growth and cash flow generation.” Kohl’s also instituted a “limited-duration shareholder rights plan,” effective until February 2023, to help the company avoid an unwanted takeover.

Kohl’s last week said it hit an all-time record of adjusted earnings per share of $7.33 in 2021, with an operating margin of 8.6% that surpassed its goal of 7% to 8% two years ahead of schedule. Kohl’s also posted a better-than expected Q4 EPS of $2.20 versus an expected $2.12. Q4 revenues reached $6.22 billion, short of a predicted $6.54 billion, according to analysts.

In light of the results, Kohl’s shared an optimistic outlook for 2022 and expects net sales to increase 2% to 3% over 2021. The company expects EPS between $7 and $7.50.

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