Kohl’s Projects Robust Sales as Macellum Questions Results

(Bloomberg) -- Kohl's Corp., under pressure by activist investors, gave an optimistic outlook for the year while reporting weaker-than-expected sales in the fourth quarter.

The company is expanding its venture with cosmetics chain Sephora after a shop-in-shop concept drove higher sales at participating locations. Kohl's executives added on a call with analysts Tuesday that Sephora is attracting new customers who are younger and more diverse. By the end of the year, more than half of Kohl's locations will have a Sephora store within it.

The shares fell 0.8% at 12:14 p.m. in New York, erasing earlier gains. The stock had risen 13% this year through Monday's close.

In an interview, Chief Executive Officer Michelle Gass said the company is optimistic about the future. “I think the biggest thing that we've done over the last year is that we've structured our business to be more profitable.” She added that the company's strategy “is building momentum and we are positioned for growth.”

The company expects full-year earnings per share to be in the range of $7 to $7.50, higher than the estimate of $6.54 compiled by Bloomberg. Kohl's sees net sales increasing 2% to 3% in the current fiscal year, with operating margin in the range of 7.2% to 7.5%.

Net sales of $6.22 billion in the quarter ended Jan. 29 came in lower than the $6.53 billion average estimate from analysts. The closely watched gauge of gross margin was 33.2%, exceeding the estimate of 32.1%.

Activist Response

Jonathan Duskin, CEO of Macellum Capital Management, said in a statement that the fourth-quarter sales result “underscores that the company's latest ‘strategy' is not working.” Macellum, which has sought to take control of Kohl's board, also expressed concern over the company's capital expenditures, arguing the retailer hasn't been able to parlay investment into higher value for shareholders.

Gass said the Kohl's board is engaging with the unsolicited bidders and has proactively reached out to some parties. She declined to say how many parties or bidders Kohl's is holding talks with. She added that an update will be in a proxy statement that the company plans to release.

In the face of rising prices and the Russian invasion of Ukraine, Gass said “there is a lot of uncertainty for the consumer” while voicing confidence in the company's financial targets.

Keeping stockpiles of merchandise up during widespread supply-chain difficulties remains a problem. The company said that low inventory during key shopping weeks during the holiday season limited sales. Kohl's has started ordering merchandise earlier to help counter logistical problems.

Kohl's will host an investor day March 7 at which management will provide an update on its strategy and key initiatives.