Kohl's cuts profit forecast after disappointing first quarter

Kohl’s Corp cut its full-year profit forecast and reported lower-than-expected quarterly results as the department store chain sold fewer full-price spring apparel and saw weak demand for home goods, sending its shares down as much as 14%.

Company executives, during a post-earning call on Tuesday, called out higher tariff and logistics costs as well as aggressive promotions as reasons for the cut in outlook, which has pushed Kohl’s 2019 earnings well below analysts’ estimates.

“Based on the soft start to the year, the adjustments we are making to be more competitive and higher cost due to tariff, we are planning the year more conservatively,” Chief Executive Michelle Gass said.

In the first quarter, Kohl’s suffered from a prolonged winter that led to higher sales of discounted warm clothes over its new spring collection. Also, sales at its home category slipped due to lack of new products and increased competition.

“Our Home category was below our expectations, a reversal of last year’s Q1 trend when Home led the company,” Gass said on a post-earnings call.

Sales at stores open for at least a year fell 3.4%, below the average analyst estimate of a 0.15% dip, according IBES data from Refinitiv. The drop in sales was the first in seven quarters.

Excluding certain items, the company earned 61 cents per share in the quarter, missing analysts’ expectation of 68 cents.

“There is no doubt that this (results) represents, at the very least, a serious diversion on Kohl’s road to recovery,” GlobalData Retail managing director Neil Saunders said.

Kohl’s said the softness in the first quarter would affect the second quarter too, but expects some recovery in sales in the second half of the year as the retailer expands its partnerships and makes its advertising more targeted.

The company has a partnership with Amazon.com that allows customers nationwide to buy and return products such as Echo dot speakers and Kindle e-readers at its stores.

“We expect (the nationwide roll out of Amazon returns in July) to be a significant traffic driver to our stores,” Gass said.

The company, however, expects fiscal 2019 adjusted profit between $5.15 and $5.45 per share, below its prior outlook of $5.80 and $6.15.

Chief Financial Officer Bruce Besanko said the latest round of tariffs would hurt the company’s home and houseware categories and added that Kohl’s was “working hard to mitigate the impact of tariffs”.

Donald Trump’s administration, earlier this month, raised tariffs on $200 billion worth of Chinese imports to 25% from 10%. The U.S. consumer companies have also been pressured by the possibility of escalating levies, which would include apparel and footwear.

Shares of the company were down nearly 11% at $56.08.