Kohl's Home Department Soft in a Tough Quarter

MENOMONEE FALLS, WIS. - While home is not among its categories highest in productivity by square footage, Kohl's still considers the home business "an opportunity" going forward.
     In the fi rst quarter, the category reported a low single-digit decline that was somewhat offset by strength in bath and towels, tabletop and electric goods.
     To help buoy home's growth, the 1,134-unit mid-tier department store is expanding the presence of the business in its new prototype in three stores - Atlanta, Houston, and Salt Lake City - this year, with plans to roll it out further.
     In the quarter, the three categories that out-performed the company average were men's, accessories and children's - the latter of which is currently being restructured and shrunken in square footage on the selling floor.
     "We are taking a little space away from children because it has the lowest productivity," explained Wesley McDonald, senior evp, cfo, during Kohl's earnings conference call last week.
     Kohl's Corp. took a net income hit in the first quarter, ended April 28, with a 23% decrease to $154 million, 63 cents per share.
     Sales rose 1.9% to $4.2 billion, with comps up slightly, by 0.2%.
     Ecommerce swelled 34% to $250 million in sales.
     Private and exclusive brands comprised 53% of quarterly sales. Kevin Mansell, chairman, president and ceo, cited Jennifer Lopez and Marc Anthony as among such brands having generated "a higher penetration" in the period as well as "more mature brands" like Simply Vera Vera Wang.
     Transactions in the quarter were down 1.4% per store.
     Mansell explained the results reflect "the implementation of our strategy to initiate lower pricing in order to provide greater value to our customers. This planned action led to significantly lower gross margins for the quarter. Strong management of expenses allowed us to achieve our earnings goal for the quarter. We have accelerated new receipts into the second quarter to ensure we are well-positioned from an inventory perspective for the back to-school season. The combination of these two actions should allow us to greatly improve our sales for the fall season."
     He added that the company "understands the changes we need to make to our merchandise" and pricing, layering in more opening price point items and value-added offerings with heftier inventory.
     In the quarter, Mansell said, "Our opening price point [offering] didn't perform, and it was a function of us not supporting it with enough inventory" because of higher costs. "Now that costs are coming down, we're buying into this at the right time."

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