Kohl's Corp. finished the second quarter with net sales down 8.5% and a sharp decline in profit, continuing a downward slide for the year, according to results released Thursday morning.
In response, Kohl's plans to buy $500 million worth of company stock to shore up the share price.
In addition, Kohl's reported that net income decreased 62.5% from $382 million in July 2021 to $143 million at the end of last month.
Kohl's CEO Michelle Gass attributed the decline to "a weakening macro environment, high inflation and dampened consumer spending, which especially pressured our middle-income customers."
"We have adjusted our plans, implementing actions to reduce inventory and lower expenses to account for a softer demand outlook," Gass said. "Kohl’s has navigated difficult periods in the past and I am confident in our ability to successfully manage through the current uncertainty."
Gass said the company is expecting sales to be down 5-6% for the year compared to 2021 but does expect some "modest improvements" the rest of the year.
“Within the quarter, I would say our toughest month was June ... that was a time when gas prices, food prices, etcetera, a lot was happening on the macroeconomic front,” Gass said in an interview.
“We did see some improvement in July. We activated a number of value-based promotions, that’s what the customer is looking for. We made changes, we saw the customer respond, but even with that being said, we’re taking a very thoughtful prudent approach to the balance of year.”
On the stock buyback plan, Gass said the investment "underscores our steadfast confidence in Kohl’s future and focus on creating shareholder value. We also remain firmly committed to our current dividend."
The company bought $158 million in shares in the first quarter of this year.
Waiting on Sephora payoff
As Kohl's builds out hundreds of Sephora stores at its locations across the country, the company is banking on the relationship to pay off in the long run.
Of the more than 200 Sephora at Kohl's stores that have been built since last year, Gass said those stores are generating a "high single-digit sales lift" compared to non-Sephora Kohl's stores.
The company, reportedly, saw an increase of a million total customers at the Sephora at Kohl's locations.
Plans call for the addition of 400 Sephora at Kohl's stores this year. Kohl's expects the improvement to continue, particularly during the holiday season.
"The 400 we just opened has really no impact on the quarter and the 200 (Sephora at Kohl's store) is too small to make a material difference," Gass said.
"We're looking forward for that to create momentum. That being said, the macro headwinds are substantial especially to our middle income consumer. So we're planning on those to continue in the back half of the year."
Kohl's announced plans for 300 "smaller footprint concept" stores with Sephora. Details of the new stores are still being formed between the two companies.
Kohl's also said stores will accept Sephora gift cards at any store regardless of where it was purchased.
"As we navigate the short-term, we continue to have very strong convictions in our long-term plans," Gass said.
Changes in leadership
Kohl's has had a rocky 2022. On July 15, the company announced its first store in downtown Milwaukee plans to open in 2023 and hours later it announced its chief technology and supply chain officer was leaving the company.
In May, the company announced sales dropped 5.2% in the first quarter which was "below expectations."
Days before the disappointing first quarter results, Kohl's announced two top executives, the chief marketing officer and the chief merchandising officer, were leaving the company.
In July, Siobhán McFeeney was promoted to chief technology officer after serving as executive vice president of technology.
On Monday, Kohl's announced it had hired Christie Raymond to be the chief merchandising officer after she served in the role on an interim basis.
"I feel really good about the leadership team we have in place in driving both our short-term plans as well as the long-term," Gass said adding of McFeeney and Raymond, "These are internal promotions and they've been a part of long-term succession planning... we are in good shape from a leadership standpoint."
The company is still searching for a chief merchandising officer.
Earlier this year, the company considered a deal with Franchise Group to buy Kohl's but talks eventually fell apart.
Kohl's shares closed at $31.33, down 7.7%.
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This article originally appeared on Milwaukee Journal Sentinel: Kohl's sales fall 8.5%, company plans $500 million stock buyback