Kohl's Beats Expectations, But Cautious Outlook Weighs on Nasdaq
The Nasdaq index dipped on Wednesday as investors remained hesitant ahead of Nvidia's earnings release, despite positive news from Kohl's. The department store chain saw its share price soar by as much as 7% in early trading, driven by a strong second-quarter earnings report that exceeded Wall Street's expectations.
Kohl's reported earnings per share of $0.15, exceeding the consensus estimate by 15 cents. This positive performance was attributed to the company's aggressive inventory management and cost-cutting measures, resulting in a 9% year-over-year decline in inventory. Chief Executive Officer (CEO) Tom Kingsbury highlighted the company's focus on "increasing inventory turns and managing inventory down mid-single digits," aiming to remain competitive during the highly promotional holiday season.
While the company boasted a positive outlook for the future, with projected operating margins between 3.4% and 3.8% and adjusted earnings per share ranging from $1.75 to $2.25, it acknowledged a "difficult consumer environment" impacting sales growth. Consumers, feeling the strain of a higher cost of living, reduced their spending in the second quarter, leading Kohl's to lower its full-year sales growth guidance. Same-store sales are now expected to decline between 3% and 5%, compared to the previously projected 1% to 3% decline.
Despite the challenging economic climate, Sephora at Kohl's remains a bright spot for the retailer. Total sales for the beauty department increased by nearly 45% year-over-year in the second quarter, with sales growth in the low-teens. The success of Sephora has led Kohl's to expand its presence, adding 140 new locations in 2024, exceeding a total of 1,000 stores.
The strong performance of Sephora has attracted younger shoppers, leading to a strategic shift in Kohl's store layouts. The company plans to relocate its juniors' section to the front of the store to capitalise on this customer base. Kingsbury noted a positive crossover effect, with "around 35% of the Sephora baskets [including] another product from Kohl's."
Despite Kohl's positive earnings report, investor sentiment remained cautious due to the uncertain economic landscape and the impending Nvidia earnings release. The Nasdaq index closed the day lower, reflecting the market's overall hesitation and wait-and-see approach.
