Boosted by strong digital sales growth, Kohl’s posted a strong first quarter and beat both top-line and bottom-line estimates. The retailer reported earnings per share of $0.64 and revenues of $4.21 billion compared to analysts’ estimates of $0.50 and $3.95 billion, respectively.
Digital sales continue to grow for the company and make up more of the retailer’s sales, with digital sales rising by nearly 20 percent in the first quarter. In particular, mobile was a driver of digital sales growth and represented more than 70 percent of digital traffic and nearly half of all digital sales.
However, during the quarter, the retailer’s Northeast and Mid-Atlantic businesses “were negatively impacted by weather,” Kohl’s CFO Bruce Besanko said in a post-earnings conference call.
Despite the weather, the company “proactively leaned into less seasonally dependent categories such as home, active footwear and apparel, denim and wear now in key item basics,” Kohl’s CEO Michelle Gass said in the call.
“This strategy, along with our digitally forward agile approach to marketing, allowed us to deliver strong sales results for the quarter,” Gass added.
Despite the earnings and revenue beat, shares fell more than 7 percent on Tuesday (May 22) as of market close. That drop could be due to investor expectations: “Investor disappointment may have been caused by a cautionary note by the company that same-store results in the second quarter could be weaker than in the first, which benefited from a popular but temporary sales promotion,” Julianne Slovak wrote in Forbes.
Going forward, Kohl’s announced in the call that the company is changing up its loyalty program, piloting the “next generation” in 100 stores in eight markets, including Raleigh, Phoenix and Austin. “We will read the results of this pilot through the holiday, adjust if necessary and anticipate a full program rollout sometime in 2019,” Gass said.
With the change, the new program has only a single rewards currency based on Kohl’s cash. The program seeks to provide access to sales events that have “historically have been limited to Kohl’s charge card holders,” Gass said. In addition, the company plans to introduce personalized offers through the program, with some benefits such as free shipping for elite members.
Gass is positive on the “robustness of the plan,” but she reiterated that the rollout is a pilot, and “we’ll learn what’s most resonating with customers and what’s not.”
The new program allows new customers to earn Kohl’s cash at the rate of 5 percent. And loyal customers — those that have the company’s charge card — will benefit from “earning 10 percent Kohl’s cash every day, which is a lot of value-add.”
Gass also briefly addressed Kohl’s relationship with ALDI in the call: In the future, the two brands will be test-driving groceries at up to 10 of Kohl’s department stores. That news came as Kohl’s said in January that it planned to lease out newly vacant space in its “right-sized” locations after shrinking the size of some of its stores, according to news from Reuters. The retailer sought “well-capitalized companies, and preferably ones that have high traffic in grocery and convenience,” according to then-CEO Kevin Mansell.
In this quarter’s call, Gass said Kohl’s is still in the “very early days” of the concept and monitor how it progresses over time. “I think … we … will open a few, will get a sense of how they’re working and then together we’ll make a decision on our way forward,” Gass said.
Gass also highlighted Kohl’s partnership with POPSUGAR to release a new apparel line: “This new innovative apparel brand … will tap into POPSUGAR’s audience of more than a 100 million readers and 31 million social followers to both inform the assortment and drive [a] unique joint marketing approach.”