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- Kohl’s has had a challenging year marked by leadership turmoil and declining sales. But its second-quarter earnings report surprised analysts. In Q2, Kohl’s posted adjusted earnings per share of $0.56, significantly exceeding the expected $0.30, leading to nearly a 20% surge in its stock price. Yet, net sales declined by 5.1% and comparable store sales fell 4.2%, reflecting ongoing consumer spending pressures.
Kohl’s has had a rocky year, so it was due for at least a little bit of good news.
On Wednesday, the discount-retail chain reported an earnings beat, shocking Wall Street analysts. The company reported adjusted earnings-per-share of $0.56, significantly beating the consensus estimate of just $0.30 per share. And markets rejoiced in the news: Kohl’s share prices are up nearly 20% on Wednesday.
“We’re surprised and encouraged by the magnitude of the raise, especially considering higher tariff rates for proprietary brands,” according to an analyst note from investment firm Baird that was shared with Fortune.
The stronger-than-expected Q2 earnings report comes at the heels of a tumultuous year for Kohl’s. After just 100 days on the job, CEO Ashley Buchanan was fired from his post for violating company policies by directing the company to conduct business with a vendor Buchanan had a personal relationship with, under “highly unusual terms” that were favorable to the vendor. Following an investigation conducted by outside counsel, Buchanan was let go for “undisclosed conflicts of interest.” Michael Bender, who was on the company’s board of directors since July 2019 and served as chair, was tapped to be interim CEO.
While Kohl’s beat Wall Street expectations, the discount retailer still reported a 5.1% decrease in net sales and a 4.2% drop in comparable sales. Still, it’s a brighter picture than many expected for Kohl’s, which has also held corporate layoffs and store closures in the past year or so.
“Although we are encouraged by our second quarter results and the improved sales trend we saw throughout the quarter, we also recognize that consumers continue to be pressured and are being choiceful with their purchases,” Bender said during Wednesday’s earnings call.
Still, discount retailers like Kohl’s are tending to perform at least a little better than other retailers during this current period of uncertainty marked by tariffs and inflation. Although Kohl’s is sometimes the butt of jokes on social media, “Kohl’s Cash” and other discounts at the retailer have proven to be a boon for business.
While lower-to-middle income customers remain the most challenged, higher-income customers have been more resilient, Bender said.
“Several of our key initiatives are focused on delivering greater value to these customers through investing in our proprietary brands and adding more coupon-eligible brands,” Bender said.
Toward the end of Q1, Kohl’s made more in-store brands eligible for coupons, which “generated an immediate positive response in our digital channel, where pricing transparency plays a significant role in customer decision making,” Bender said. “As the quarter progressed, we saw the performance improve in our stores as we increased investment in in store signage and marketing.”
That could be a telling sign customers are continuing to chase deals as they watch other stores raise prices due to inflation and tariffs. To be sure, many middle-income customers have also “traded-down” to even more value-focused brands, so Kohl’s will need to continue offering coupon-friendly brands and items to stay afloat. Baird cites potential risks for Kohl’s as “choppy” consumer spending trends, a highly competitive promotional space, weather, and other economic factors.
Other reasons Kohl’s is inching toward its comeback is thanks to continued growth in its jewelry business, investing back in women’s clothing, and its partnership with Sephora. Bender said more than one-third of Sephora shoppers are also exploring other areas of Kohl’s stores.
Jewelry and women’s clothing had been a sore spot for Kohl’s after Buchanan’s predecessor Tom Kingsbury had opted for Kohl’s to carry less inventory (like fine jewelry and women’s petite sizing), which ultimately hurt business. Kingsbury even admitted his choice to do so was “shortsighted.”
This story was originally featured on Fortune.com
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