By Katherine Hyunjung Lee
Kohl’s Corp. (NYSE:KSS), a Wisconsin-based department store chain with more than 1,100 stores nationwide, Thursday reported its net income declined by 14.9 percent to $252 million in the fourth quarter ended Jan. 28 from $296 million a year before. But diluted earnings per share beat Bloomberg’s consensus estimate of $1.29 per share at $1.44 per share.
The stock dropped $1.04, closing at $40.91 in NYSE trading.
“They beat the earnings estimate, but that estimate was adjusted in January. And those were well below planned, adjusted from $1.65 to $1.35. They came in at $1.44,” Brian Yarbrough, an analyst at Edward Jones, said in an interview. “So they beat estimates, but there was a lower guidance back in January.”
Sales were $6.21 billion, down 2.8 percent from $6.39 billion in the prior-year quarter.
“Sales results were weak for the quarter in total, driven by declines in brick and mortar traffic, and offset somewhat by strength in online demand,” Kevin Mansell, Kohl’s chairman, president and CEO, said in the company’s earnings announcement. “We saw improvement in merchandise margins, and our team continued to manage inventory and expenses extremely well.”
Kohl’s merchandise inventories at year-end were $3.79 billion, about 6 percent lower than $4.04 billion a year before. The company also shed $205 million of property and equipment assets in the fiscal year and generated a cash flow of $367 million. On Wednesday, the company declared a quarterly cash dividend on its common stock of 55 cents per share, up 10 percent.
“They generated a lot of cash from reducing their inventory and closing stores. The issue becomes, as earnings decline, dividends become harder to pay. And earnings keep declining,” Yarbrough said. “Over time, they’re going to have to cut back on dividends, or cut back on share repurchases.”
Kohl’s executives on a conference call with investors on Thursday pointed to the company’s investments in an upcoming launch of the Under Armour brand’s line and omnichannel strategies as potential strengths. How successful the Under Armour launch will be is unclear, as the stock of the sportswear brand has been declining in the past year.
Executives on the call also said that the company is making efforts to relocate or rightsize its stores to make each one leaner and more efficient. Closing down a store, Mansell said, is a third and last option. Last year the company closed 19 stores.
“We believe stores are a very important and critical component of our future success and are committed to leverage them to our full extent,” Mansell said.
Kohl’s has 66 stores and one distribution center in Illinois, which employ about 8,100 workers.
“Going forward, the key is going to be: Do these companies rationalize their square footage fast enough? Can they drive foot traffic?” Yarbrough said. “Quarter by quarter, it becomes more difficult to predict. A lot depends on the weather, because these retailers are mostly selling apparel and accessories. In the longer term, there are structural challenges in the industry.”
For the year ended Jan. 28, the company reported net income of $556 million, or $3.11 per diluted share, down 17.4 percent from $673 million, or $3.46 per diluted share, in the prior year. In January the company shaved its earnings guidance for the past year to $2.92 to $2.97 versus its previous guidance of $3.12 to $3.32.
The company’s annual sales decreased 2.7 percent to $18.69 billion from $19.2 billion the year before. Annual gross margins decreased 2.8 percent.