© Reuters. FILE PHOTO: The Kohl’s label is seen on a shopping basket in a Kohl’s department store in the Brooklyn borough of New York, U.S., January 25, 2022. REUTERS/Brendan McDermid
(Reuters) – Kohl’s Corp (NYSE:) reported a surprise quarterly loss and forecast full-year profit well below analysts’ estimates on Wednesday, as steep discounts to boost sluggish demand for apparel shredded the retailer’s margins.
The department store operator’s shares dropped nearly 7% in premarket trading and triggered a 2% fall in shares of rivals Macy’s Inc (NYSE:)
Surging costs of rent and food over the last year have forced customers to cut back on spending on non-essential products, pushing Kohl’s and other retailers into steeper discounts and promotions to clear excess stocks of casual apparel.
Those discounts were the major contributor to a more than 10 percentage point decline in fourth-quarter gross margins to 23%, Kohl’s said.
The company is especially hard hit as the lower-income customers it typically caters to are among the worst hit from surging prices.
Kohl’s reported a loss of $2.49 per share for the fourth quarter ended Jan. 28, compared with estimates for a profit of 98 cents.
The results reflect “sales pressure driven by the ongoing persistent inflationary environment,” newly appointed Chief Executive Officer Tom Kingsbury said in a statement.
The company expects fiscal 2023 earnings per share of $2.10 to $2.70, compared with analysts’ estimates of $3.20, according to Refinitiv IBES data.
U.S. retailers including Walmart (NYSE:) and Target Corp (NYSE:) are taking a conservative approach to their expectations for 2023, as accelerating consumer prices amplify fears that the Federal Reserve could further lift borrowing costs to cool demand, likely tipping the economy into a recession.
Comparable sales at Kohl’s fell 6.6% in the fourth quarter, compared with analysts’ estimate of a 3.7% decrease.
Separately, apparel maker Abercrombie & Fitch also missed holiday quarter earnings estimates on Wednesday, hit by higher costs of cotton.
Still, the company forecast full-year sales above estimates, saying it was “cautiously optimistic” about consumer demand.
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