KOHLS Corp Q4 FY2024 earnings call

• Ashley discussed initial takeaways from reviewing the business, emphasizing a need to reprioritize initiatives to better serve all customers, focusing on a curated assortment, reestablishing value and quality, and enhancing omnichannel. - Jill provided Q4 performance details: net sales and comp sales declines, channel performance (store sales improved, digital underperformed), line of business results (Sephora strong, proprietary brands improving, key growth categories outperforming), P&L details (gross margin increase, SG&A decrease), balance sheet and cash flow info. - Priorities for 2025 include rebuilding cash balance, reducing revolver reliance, capital allocation for Sephora rollout, impulse fixtures, omnichannel enhancements, and opening small stores, with a dividend reduction for balance sheet flexibility.

Net sales declined 9.4% in Q4 and 7.2% for the year. Comparable sales decreased 6.7% in Q4 and 6.5% for the year. Store comparable sales declined 3.1% in Q4, digital comparable sales declined 13.4% in Q4. Sephora had comparable beauty sales increasing 13%, an acceleration from Q3. Accessories (excluding Sephora) had a flat comp for the quarter. Proprietary brands saw a relative sales lift throughout the quarter, helping apparel businesses improve. Key growth categories like impulse, gifting, home decor, and baby gear outperformed, but legacy home remained challenged. Nearly all lines of business improved comp sales vs Q3.

• Full year 2025 net sales expected to be in the range of a 5% decrease to a 7% decrease vs 2024. - Comparable sales expected in the range of a 4% decrease to a 6% decrease. - Operating margins to be in the range of 2.2% to 2.6% and earnings per share to be in the range of $0.10 per diluted share to $0.60 per diluted share. - Other revenue expected down 12%. - Gross margin to expand 30 basis points to 50 basis points. - SG&A dollars to be in the range of down 3.5% to down 5%. - Depreciation and amortization of $730 million, interest expense of $315 million, and a tax rate of 18%.

• Macro environment uncertainty impacting customer spending. - Inventory management challenges. - Supply chain volatility affecting product availability and costs. - Customer spending constraints based on income levels and inflation.

Q: Could you talk us through your assessment of what has been working, what hasn't been working with the merchandising strategy, where you believe you can affect the most change in the near term, what might take longer to implement, and just bigger picture, what gives you confidence that Kohl's Corporation can return to growth?

A: Ashley discussed that there was opportunity in products, value, quality, and omnichannel, with past issues being self-inflicted, loyal customer base, and confidence in turning around with tactical moves and long-term value proposition development.

Q: What are the implications from a margin perspective as you aim to elevate the quality of the private plan brands while also broadening the brand inclusion with the promotional offers? And on the promotional offer side, what has been the feedback from your brand partners initially?

A: Ashley discussed that proprietary brands have a better margin mix, but it will take time to adjust the mix of excluded brands from coupons, with past exclusions causing customer friction and need to rebalance.

Q: How do you think of the store base? What are you looking for? We always knew that they had they were profitable stores. What's the right mix to be both size and number?

A: Ashley stated that very few stores are unprofitable, the 80k+ prototype is highly productive, with smaller formats still a work in progress but the 80k being the workhorse.

Q: Could you speak to the expectations going forward for Sephora this year in both, you know, maybe same-store sales or store additions?

A: Jill stated that Sephora rollout will continue with 140 stores opened in 2024, completion in 2025 with smaller format stores, and continued strong performance with new brands resonating.

Q: Regaining traction with lost customers can be hard and oftentimes can take a long time. I'm curious of what, you know, what steps you're taking to improve on this front.

A: Ashley discussed regaining customers by going back to proprietary brands, putting categories back effectively, getting brands back on coupons, and then telling customers, with a large customer file to reach out to over time.

Q: Could you speak to the process of reversing the brand exclusions on the coupon program? What does that look like in practice? And are you seeing any headway on brand conversations in getting those exclusions removed?

A: Ashley discussed evaluating every brand, focusing on unilaterally excluded brands over the years, with many brands not asking to be excluded and being easier to repeal, while having strategic conversations with larger national brands.