Kohl’s (KSS) Releases Long-Term Financial Goals on 2022 Investor Day

Kohl's (KSS) Releases Long-Term Financial Goals on 2022 Investor Day

The Kohl’s logo is displayed outside a Kohl’s store on January 24, 2022 in San Rafael, California.

Justin Sullivan | Getty Images

Kohl’s, facing pressure from activists to consider a sale, wants investors to see the progress it is making on its own terms to refresh its physical stores and find ways to attract new and younger shoppers to the business .

“Make no mistake, this is a transformation,” chief executive Michelle Gass said as she kicked off a virtual investor meeting Monday morning. “It’s a complete reimagining of our business model and our brand.”

Ahead of Monday’s meeting, Kohl’s released new long-term financial goals, including sales growth of single-digit percentage per year.

Shares of Kohl’s closed Monday down nearly 13% as some investors were disappointed with longer-term forecasts. Others had hoped the company would discuss a sales process more concretely.

Gordon Haskett analyst Don Bilson said he saw nothing in Kohl’s updated financial targets that was going to be a “knockout blow” for the retailer. “Today’s margin guidance is consistent with previous guidance, so it’s not a game-changer,” he said.

Kohl’s also announced plans to grow its Sephora business to more than $2 billion in annual sales. So far, Kohl’s has opened about 200 Sephora stores in its physical stores and is on track to reach 850 by next year. The company has yet to break out Sephora’s revenue in its earnings reports.

In the meantime, Kohl’s is set to open more than 100 smaller-format stores over the next four years in a bid to attract new customers. Gass said in an interview that the smallest stores average about 35,000 square feet, with one of the first being tested in the Seattle area. For comparison, the typical Kohl’s store can span around 80,000 square feet.

“This year is a big year for us,” she said over the phone. “The framework we have in place for investors…it’s a very thoughtful guide for us.”

In addition to the longer-term revenue target, Kohl’s said it would target operating margins of between 7% and 8% per year; mid to high single digit earnings per share growth; and operating cash flow of more than $5.5 billion, with approximately $2.5 billion in free cash flow between 2022 and 2024.

Key to Kohl’s transformation is educating customers to think about the business unlike mall-based department stores that are packed with women’s clothing and homewares. Instead, the company said it wanted to be known as a go-to destination for activewear, such as sneakers, hoodies and leggings, from brands including Nike, Adidas, Champion and its own brand FLX.

“We are evolving our position from a department store to a more focused lifestyle concept, centered on the active, casual lifestyle,” Gass said at the investor meeting. “It’s unique and we can own this space.”

Activists push for change

Monday’s meeting with investors and analysts is under the spotlight as the retailer faces heightened pressure from activist groups, including one seeks to take control of the retailer’s board of directors.

Last month, Kohl’s rejected takeover offers that were on the table, which it said undervalued its business. In recent weeks, however, Kohl’s said it has worked with bankers and other financial advisers to review unsolicited offers and also to proactively educate potential buyers.

Activists Macellum Advisors and Engine Capital argued that Kohl’s underperformed other off-mall retailers such as Target and TJ Maxx, and even some department store chains, including Macy’s. Kohl’s shares are up only about 6% in the past 12 months, compared to Macy’s stock, which is up about 65%. The companies also urged Kohl’s to consider selling some of its real estate and renting it out, to unlock capital.

On Friday, Macellum called Kohl’s fiscal fourth quarter results disappointing, saying he remained skeptical of the retailer’s future given the current board and management setup.

“Why were sales only hampered by supply chain issues compared to many other retailers? asked Jonathan Duskin, managing partner of Macellum.

For the three months ended Jan. 29, Kohl reported revenue of $6.22 billion, which was slightly below analyst estimates, but he released a more optimistic revenue outlook for 2022 despite continued headwinds. of the supply chain. The retailer also said it plans to double its annual dividend and buy back at least $1 billion of its stock this year.

All-in enabled

On Monday, Kohl’s underlined its intention to continue to grow its active merchandise assortment, which it said accounted for about 24% of total revenue in 2021, up from 14% in 2016.

According to Gass, the Covid-19 pandemic has spurred consumers’ desire to dress more comfortably, and even as people return to the office and other social settings, the trend is here to stay.

“I think we can all personally relate to that…although you might dress a little more than when you were taking a Calling Zoom from your home office, you might still want to wear sneakers to the office rather than dress shoes,” the CEO said at the investor meeting. “This creates great opportunities for Kohl’s.”

Still, Kohl’s said it also hopes to significantly expand its womenswear business, while expanding into outerwear and swimwear, and expanding its size-inclusive selection.

Merchandising director Doug Howe said the company’s women’s assortment was disproportionate, impacted by supply chain hurdles last year. This year, in an effort to spur interest in dresses and other women’s clothing that isn’t sportswear, he said Kohl will test “clothing destinations” at select stores.

To make the in-store checkout experience smoother for customers, Kohl’s also said it will be rolling out an online self-service purchase, in-store pickup option at all locations this year, while continuing to test self-service returns and departure offers.

Over the long term, Kohl’s expects its digital business to generate $8 billion in annual revenue, thanks in part to its ongoing efforts to make it easier for visitors to find brands and make purchases on its website. Kohl’s total revenue for fiscal 2021 was $19.4 billion, up from $16 billion a year earlier.

“We have demonstrated that we have a very strong program of growth engines that are going to have a long tailwind ahead of us, which gives us confidence,” Gass said.

Find the full press release from Kohl’s here.