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Profits are falling more than 50% annually due to weak sales as consumer fears persist

Consumers have begun to scale back their spending – and some retailers are feeling the brunt of that.

Kohl’s (KSS) earnings were better in the second quarter, but earnings were down 53% from a year ago.

Adjusted earnings per share came in at $0.52, above analyst estimates of $0.23 for the second quarter, according to data from Bloomberg. Earnings per share were $1.11 in the year-ago period.

Same-store sales fell 5.0%. That’s lower than analysts’ estimates for a 4.62% drop. Net sales fell 4.8% to $3.68 billion, slightly below estimates of $3.71 billion.

However, Kohl’s Sephora business continued to prove strong. Speaking to investors on the phone, CEO Tim Kingsbury, who took over in February, said Sephora at Kohl’s is “exceeding expectations” and “bringing in new customers who shop more often.” Kingsbury added that Sephora’s customers tend to be “a younger, more diverse consumer.”

Inventories also fell 14% from a year ago, but fell short of analyst estimates.

Following the results, Kohl’s shares fluctuated ahead of the market, rising 1% in early trading.

The income statement:

Here are Kohl’s second-quarter results versus estimates, according to data from Bloomberg:

  • Net sales: $3.68 billion versus $3.71 billion expected

  • Custom WPA: $0.52 versus $0.23 expected

  • Sale in the same store: -5% versus -4.62% expected

  • Gross Profit Margin: 39% versus 38.6% expected

  • Adjusted Net Income: 58% vs. 27.26%

  • stocks: -14%

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Kohl’s, an American retail chain, reported earnings on Wednesday, August 23, 2023. (UCG/Universal Images Group via Getty Images)

What else we look at: credit card payments, 2023 outlook

Kohl’s is also not immune to the recent surge in credit card debt and delinquencies, as Yahoo Finance’s Janna Herron reported.

Kohl’s CFO Jill Timm said, “payment rates [are] down, losses up” – a potential red flag for investors.

“Loan losses have increased from what was clearly a very low year last year,” Timm added. “But as expected… we took early action as we expected the macroeconomic environment to worsen and people to have less cash in their bank accounts.”

However, payment levels are still above 2019.

In the second quarter, the retailer launched a credit card offering with Capital One (COF), which Timm said will offer “a new vehicle to customers who may not have wanted a private label credit card” in another effort to win over younger consumers.

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The Kohls Corporation website is displayed in the background on a laptop with a hand holding a bank card.  (Photo illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)

The Kohls Corporation website is displayed in the background on a laptop with a hand holding a bank card. (Rafael Henrique/SOPA Images/LightRocket via Getty Images)

For the full year 2023, Kohl’s expects net sales to decline between 2% and 4%. Operating margin is expected to be 4%, while adjusted earnings per share are expected to be between $2.10 and $2.70.

“Many of our strategic efforts are just getting started, and we expect them to contribute incrementally in the second half of the year, and even more so in 2024 and beyond,” CEO Tim Kingsbury said in the release, adding that the team “confident in our longer-term opportunities.”

In the second quarter, the company opened 200 Sephora stores and plans to open another 50 this month, bringing the total to 850. The company will also open 45 smaller 70-square-foot Sephora stores across the rest of the chain in October. will bring it to 900 stores by the end of 2023.

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What analysts said pre-earnings:

“Like the previous one [quarter]KSS returned to profit margin, driven primarily by better SG&A expenses (although sales/GM were also slightly better than consensus). [Management] also reaffirmed its annual guidance of $2.10-2.70 against a consensus of $2.38. While trends are not good on an absolute basis, they don’t seem to be getting worse and inventories are now better for it (down 14% in the second quarter versus a 6% decline in the first quarter). [Management] reaffirmed its commitment to its dividend (positive considering FL just cut it) and didn’t set off alarm bells in the credit industry (like M). We await the call to hear more about current trends.” -Paul Lejuiez, Citi

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].

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