Kohl’s(KSS) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales decreased by 4.2% in Q2 and are down 4.7% year-to-date, with comparable sales declining by 5.1% in Q2 and 4.8% year-to-date [22] - Gross margin for Q2 was 39.6%, an increase of 59 basis points year-over-year, driven by inventory management and lower freight expenses [22] - SG&A expenses declined by 4.2% to $1.2 billion in Q2, benefiting from lower store-related expenses [23] - Net income for Q2 was$ 66 million, with earnings per diluted share at $0.59 [23] - Year-to-date operating cash flow was$ 247 million, an increase of $228 million from the previous year [24] Business Line Data and Key Metrics Changes - Sephora at Kohl's saw total beauty sales increase approximately 45%, with comparable beauty sales growing in the low-teens percent [7] - Home decor sales increased more than 35% year-over-year, while gifting sales rose over 30% [9][10] - Impulse sales grew by more than 70% due to the expansion of queue lines [11] - The intimate apparel business struggled, contributing to overall declines in the women's business [31] Market Data and Key Metrics Changes - Digital sales outperformed store sales, with overall transactions increasing [22][18] - The middle-income consumer segment is experiencing pressure from inflation and high interest rates, affecting spending behavior [13][19] Company Strategy and Development Direction - The company is focused on enhancing customer experience, simplifying value strategies, managing inventory and expenses, and strengthening the balance sheet [7] - New partnerships, such as with Babies "R" Us, are expected to broaden the customer base and drive sales growth [6][12] - The company plans to evolve marketing strategies to emphasize value and lower price messaging [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging consumer environment, with customers exhibiting more discretion in spending [4][19] - The outlook for the remainder of the year assumes continued macroeconomic challenges, but the company remains confident in its strategic initiatives [6][27] - The company expects net sales to decrease by 4% to 6% for the full year, with comparable sales projected to decline by 3% to 5% [27] Other Important Information - The company reduced long-term debt by$ 113 million and revolver borrowings by $150 million compared to last year [13] - Capital expenditures year-to-date were$ 239 million, significantly less than the previous year's $338 million [25] Q&A Session Summary Question: Can you expand on the performance of women's and dresses in stores with Sephora? - Management noted that stores with dresses are performing better, and they are working to improve the overall women's business, which has faced challenges [30][31] Question: What is the cadence of demand through the quarter? - Management indicated a consistent quarter with no significant differences between regular pricing and clearance [34] Question: What percentage of customers cross-shop when making a Sephora purchase? - Approximately 35% of Sephora baskets include other Kohl's products, indicating a strong crossover [37] Question: What early reads are available for Babies "R" Us? - Early results show strong sales in baby gear and furniture, with a positive outlook as more stores open [42] Question: What is driving the increased margin leverage in the guidance? - The guidance reflects confidence in new initiatives and improved inventory management, despite a challenging sales environment [46][48]