Kohl's set for worst day ever on surprise quarterly loss, annual forecast cut

By Aatrayee Chatterjee

(Reuters) -Department store chain Kohl's cut its annual sales and profit forecasts after posting a surprise quarterly loss on weaker consumer demand for its apparel and footwear on Thursday, dragging its shares down as much as 26% in early trading.

American shoppers are still prioritizing essential purchases over discretionary products like apparel, electronics and home goods, as they face dwindling pandemic-era savings and higher interest rates.

Discretionary spend of Kohl's middle-income customers continues to be pressured by a number of economic factors including high interest rates and inflation, while it has remained steady among high-income customers, Chief Executive Officer Tom Kingsbury said on a post-earnings call.

The department store chain's dismal quarterly report comes in contrast to some of the other retailers including Abercrombie, which reported strong first-quarter sales owing to its merchandise being more on-trend.

"Kohl's has been too reliant on other brands such as Sephora, Amazon, and now Babies R Us to drive traffic rather than distinguishing its core brand identity," Emarketer senior analyst Zak Stambor said.

Shoppers are willing to spend if they see value in an on-trend, well-made dress from Abercrombie, or a healthy salad from Sweetgreen, he added.

Kohl's also said that lower clearance sales compared to last year resulted in a more than 600-basis-point drag on comparable sales that decreased 4.4% in the first quarter.

The company forecast fiscal 2024 net sales to fall between 2% and 4%, compared with its previous expectation of between a 1% drop and a 1% rise.

It also expects annual earnings per share in the range of $1.25 and $1.85, compared with its previous forecast of $2.10 to $2.70.

The company reported a per-share loss of 24 cents in the first quarter, while analysts were expecting a profit of 4 cents per share, according to LSEG data.

Kohl's was trading at $20.38 and was on track for its worst day ever, while its peers Macy's and Nordstrom Inc, which is reporting later today, were down about 3% each.

(Reporting by Aatrayee Chatterjee in Bengaluru; Editing by Shilpi Majumdar and Vijay Kishore)