Kohl’s Corporation (NYSE:KSS) experienced a significant drop in its stock price, falling as much as 26% in early trading on Thursday, after the department store chain announced a surprise quarterly loss and cut its annual sales and profit forecasts. The company attributed the disappointing results to weaker consumer demand for its apparel and footwear.
American shoppers are prioritizing essential purchases over discretionary items like apparel, electronics, and home goods, due to dwindling pandemic-era savings and higher interest rates. CEO Tom Kingsbury noted on a post-earnings call that discretionary spending among Kohl’s middle-income customers is being heavily impacted by high interest rates and inflation, while spending among high-income customers has remained steady.
In contrast to Kohl’s performance, other retailers such as Abercrombie & Fitch Co. (NYSE:ANF) have reported strong first-quarter sales driven by more on-trend merchandise.
“Kohl’s has relied too heavily on other brands like Sephora, Amazon (NASDAQ:AMZN), and now Babies R Us to drive traffic, rather than defining its core brand identity,” commented Zak Stambor, senior analyst at eMarketer. He added that consumers are willing to spend on on-trend, high-quality items like Abercrombie’s dresses or Sweetgreen’s (NYSE:SG) healthy salads.
Kohl’s also reported that lower clearance sales compared to last year resulted in a more than 600-basis-point drag on comparable sales, which decreased by 4.4% in the first quarter.
The company revised its fiscal 2024 net sales forecast to a decline of between 2% and 4%, compared to the previous expectation of a 1% drop to a 1% increase. It also adjusted its annual earnings per share forecast to a range of $1.25 to $1.85, down from the earlier forecast of $2.10 to $2.70.
For the first quarter, Kohl’s reported a loss of 24 cents per share, while analysts had anticipated a profit of 4 cents per share, according to LSEG data.
Kohl’s shares were trading at $20.38, on track for their worst day ever. Meanwhile, peers Macy’s Inc. (NYSE:M) and Nordstrom Inc. (NYSE:JWN), which is set to report later today, saw their shares decline by about 3% each.
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