Kohl’s(KSS) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales declined by 2.8% in Q3 and 4% year-to-date, with comparable sales down 1.7% in Q3 and 3.2% year-to-date [32] - Adjusted net income for Q3 was $11 million, equating to an adjusted diluted earnings per share of $0.10, while year-to-date adjusted net income is $61 million with adjusted diluted earnings per share of $0.54 [36][37] - Gross margin improved to 39.6%, an increase of 51 basis points year-over-year, driven by strong inventory management and product mix benefits [34] - SG&A expenses declined by 2.1% to $1.3 billion in Q3, with year-to-date SG&A expenses down 3.8% [35] Business Line Data and Key Metrics Changes - Digital sales grew by 2.4% versus last year, outperforming store sales, driven by increased traffic [33] - Women's business showed significant improvement, particularly in proprietary brands, contributing positively to overall performance [14] - Men's business also improved, with proprietary brands performing well and dress and tailored categories seeing strong sales [15] - Accessories, particularly jewelry, saw a 10% increase in Q3, while home categories showed improvement, especially in soft home products [17][18] Market Data and Key Metrics Changes - Comparable sales performance improved with a positive 1% in October, following a decline in September due to unseasonably warm weather [11] - Low-to-middle-income consumers are increasingly seeking value, impacting overall consumer behavior [12] Company Strategy and Development Direction - The company is focused on three key priorities for its 2025 initiatives: offering a curated assortment, reestablishing Kohl's as a leader in value and quality, and delivering a frictionless shopping experience [12][18] - There is a commitment to enhancing proprietary brands and optimizing the balance between national and proprietary brands to meet customer needs [19][21] - The company is leveraging artificial intelligence to improve efficiency and customer experience across digital platforms [25] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the ongoing pressure on discretionary income for low-to-middle-income consumers and anticipates this behavior to continue into Q4 [12][39] - The company is optimistic about its positioning for the holiday season, emphasizing exceptional value and exclusive offerings [27][30] - Management remains focused on restoring trip assurance and improving inventory allocation to enhance the shopping experience [26] Other Important Information - The company ended Q3 with $144 million in cash and cash equivalents, with inventory decreasing approximately 5% compared to last year [37] - Capital expenditures are projected to be around $400 million for the year, primarily for the completion of Sephora rollouts and other strategic initiatives [38] Q&A Session Summary Question: How is the company connecting with former and lapsed customers? - Management noted that core customers continued to shop, but some trips were lost. Marketing efforts are being ramped up to re-engage these customers, particularly through personalized coupons and inventory availability [42][43] Question: Can you break down the $1.3 billion of operating cash flow? - The majority of the cash flow is attributed to strong inventory management, with a focus on maintaining lower inventory levels while improving sales performance [50][51] Question: Which strategic initiatives are showing the most promise? - The focus on building a more balanced assortment and enhancing proprietary brands has shown significant progress, particularly in women's categories [58][60] Question: What is the outlook for gross margin in Q4? - Management expects continued benefits from inventory management and product mix, but anticipates some headwinds due to increased digital sales and promotional activities [76][77] Question: What is the current debt position and outlook? - The company has approximately $1.5 billion in debt, with plans to exit the revolver by the end of the year, positioning itself well for future liquidity [79][80]