Kohl's Earnings Surprise Crash and Burn

[ClownLoach]

Is there an extra 50% off on clearance now? I heard there was.

I was also reminded tonight when discussing this with someone else that Kohls has had multiple "extra 50% off clearance" sales in the past few months. So it is interesting they are saying they did not repeat clearance events... that is not true.

Yes was just editing my post to clarify. I think technically they started the extra clearance in Q2.

Three year stack of negative Q1 comps isn't unlike other nearly dead department store chains that are loaded up with debt and too many leased buildings. Chains like Nordstrom or Dillard's with less or no debt and more owned real estate may be able to survive that sort of thing but this is not a good spot for Kohls to be in.

Speaking of Dillards- was in that store in Stockton. The place does a booming business. In Stockton. I could not believe it. That is the busiest Dillards I've ever seen. Actually the town Stockton seems healthier than it used to be. Or maybe it is the literal rot and deterioration of multiple sections of the bay area that has occurred lately and that Stockton has just stayed the same... but I felt a lot safer going around most of Stockton, than I do in a lot of parts of the bay area.

There is a difference - Kohl's was claiming to have turned the corner, only to blindside their investors with negative on top of one of the worst Q1s they've ever delivered. That kind of situation could even lead to shareholder lawsuits as they had an obligation to issue a warning that they were so so so far off track. I think there is validity to the accusations that the only thing propping up the numbers, bad as they are, is Sephora and they have made no progress on the core business at all.

They cannot swing from extreme to extreme. Full price, no coupon, full price, no coupon, 10% off clearance markdown, then fire sale 50% off markdown plus 50%... They will train their customers to only shop when it's 50+50. Hell, I'm already there. They need to make the coupons work on every damn thing in the store without exception or excuses. And they need to manage the markdowns because 10% off is not a clearance price on apparel, period.

Love or hate Macy's, but the majority of the time the store is having a "One Day Sale" where basically every item is on sale in some way. Sure today's "One Day" might be 40% off and tomorrow's might be $25 off and after that it's BOGO Free, but there is no reason to pay full price for anything brand name at Kohl's when you can at least shop the same brand's direct to customer channels and get a better experience and selection of that favorite brand.

The only Dillard's I've visited in the last few years is Fashion Show in Las Vegas and it is consistently busy. The difference is I see people buying there, while I see people browsing at Macy's.

[SamSpade]

Off Topic

The only Dillard's I've visited in the last few years is Fashion Show in Las Vegas and it is consistently busy. The difference is I see people buying there, while I see people browsing at Macy's.

I did not get into the main Dillards store at FSLV this trip, however we did go to the clearance center at Meadows Mall on Memorial Day (it was specially open on the holiday Monday). It was very busy with a substantial wait in line for the 3 register employees and even the men's fitting room. Some of this may have been because they do not allow returns. You bought it? You got it forever.

For a change, the clearance center was actually selling mostly seasonal merchandise for Las Vegas, things like shorts and short sleeved shirts in the men's department while still carrying the basics (suit separates, dress shirts, ties, dress shoes, etc.).

They also had a literal "please take this off our hands" thrift store style tag sale going on - if the tag was green, the item was $3 and could not be tried on at a fitting room. By Monday this appeared pretty picked over, but in men's there were some pajama pants or shorts for the right customer.

[mbz321]

They need to make the coupons work on every damn thing in the store without exception or excuses.

Yes! I'm in need of new sneakers and I know a few years ago, coupons would apply to pretty much every brand except for maybe Nike. Now, the coupons only seem to work on the Kohl's house brands (which after coupon, still weren't cheap enough for me to even take a gamble on). The regularly priced shoes weren't priced better than anywhere else either, so in the end, i bought nothing.

[storewanderer]

They need to make the coupons work on every damn thing in the store without exception or excuses.

Yes! I'm in need of new sneakers and I know a few years ago, coupons would apply to pretty much every brand except for maybe Nike. Now, the coupons only seem to work on the Kohl's house brands (which after coupon, still weren't cheap enough for me to even take a gamble on). The regularly priced shoes weren't priced better than anywhere else either, so in the end, i bought nothing.

At this point I think the coupon program does more harm than good. They need to quit issuing these coupons with all of the restrictions on them.

The coupons do work on some other non-Kohls brands but it is really confusing. Also their price scanners used to designate what items were ineligible from coupons but they no longer designate it. I've had a few instances where I have had a pile of items and after paying review my receipt and then just go back and return whatever items the coupon didn't work on.

[buckguy]

Yes was just editing my post to clarify. I think technically they started the extra clearance in Q2.

Three year stack of negative Q1 comps isn't unlike other nearly dead department store chains that are loaded up with debt and too many leased buildings. Chains like Nordstrom or Dillard's with less or no debt and more owned real estate may be able to survive that sort of thing but this is not a good spot for Kohls to be in.

Speaking of Dillards- was in that store in Stockton. The place does a booming business. In Stockton. I could not believe it. That is the busiest Dillards I've ever seen. Actually the town Stockton seems healthier than it used to be. Or maybe it is the literal rot and deterioration of multiple sections of the bay area that has occurred lately and that Stockton has just stayed the same... but I felt a lot safer going around most of Stockton, than I do in a lot of parts of the bay area.

There is a difference - Kohl's was claiming to have turned the corner, only to blindside their investors with negative on top of one of the worst Q1s they've ever delivered. That kind of situation could even lead to shareholder lawsuits as they had an obligation to issue a warning that they were so so so far off track. I think there is validity to the accusations that the only thing propping up the numbers, bad as they are, is Sephora and they have made no progress on the core business at all.

They cannot swing from extreme to extreme. Full price, no coupon, full price, no coupon, 10% off clearance markdown, then fire sale 50% off markdown plus 50%... They will train their customers to only shop when it's 50+50. Hell, I'm already there. They need to make the coupons work on every damn thing in the store without exception or excuses. And they need to manage the markdowns because 10% off is not a clearance price on apparel, period.

Love or hate Macy's, but the majority of the time the store is having a "One Day Sale" where basically every item is on sale in some way. Sure today's "One Day" might be 40% off and tomorrow's might be $25 off and after that it's BOGO Free, but there is no reason to pay full price for anything brand name at Kohl's when you can at least shop the same brand's direct to customer channels and get a better experience and selection of that favorite brand.

The only Dillard's I've visited in the last few years is Fashion Show in Las Vegas and it is consistently busy. The difference is I see people buying there, while I see people browsing at Macy's.

Dillard's sales continue to slide and their profit margins have taken a beating since COVID when they (and others) were able to sell more full price merchandise. I recently visited two of their stores in Ohio. Neither had any customers and one of them seemed to have literally no staffing in the home store or the cosmetic/jewelry section that was just off the mall. Macy's, in contrast had some customers and you could find staff. Owning mall real estate may save you rent, but it's a declining investment in most places. Dillard continues to do buy backs in order to raise the dividend.

[ClownLoach]

Three year stack of negative Q1 comps isn't unlike other nearly dead department store chains that are loaded up with debt and too many leased buildings. Chains like Nordstrom or Dillard's with less or no debt and more owned real estate may be able to survive that sort of thing but this is not a good spot for Kohls to be in.

Speaking of Dillards- was in that store in Stockton. The place does a booming business. In Stockton. I could not believe it. That is the busiest Dillards I've ever seen. Actually the town Stockton seems healthier than it used to be. Or maybe it is the literal rot and deterioration of multiple sections of the bay area that has occurred lately and that Stockton has just stayed the same... but I felt a lot safer going around most of Stockton, than I do in a lot of parts of the bay area.

There is a difference - Kohl's was claiming to have turned the corner, only to blindside their investors with negative on top of one of the worst Q1s they've ever delivered. That kind of situation could even lead to shareholder lawsuits as they had an obligation to issue a warning that they were so so so far off track. I think there is validity to the accusations that the only thing propping up the numbers, bad as they are, is Sephora and they have made no progress on the core business at all.

They cannot swing from extreme to extreme. Full price, no coupon, full price, no coupon, 10% off clearance markdown, then fire sale 50% off markdown plus 50%... They will train their customers to only shop when it's 50+50. Hell, I'm already there. They need to make the coupons work on every damn thing in the store without exception or excuses. And they need to manage the markdowns because 10% off is not a clearance price on apparel, period.

Love or hate Macy's, but the majority of the time the store is having a "One Day Sale" where basically every item is on sale in some way. Sure today's "One Day" might be 40% off and tomorrow's might be $25 off and after that it's BOGO Free, but there is no reason to pay full price for anything brand name at Kohl's when you can at least shop the same brand's direct to customer channels and get a better experience and selection of that favorite brand.

The only Dillard's I've visited in the last few years is Fashion Show in Las Vegas and it is consistently busy. The difference is I see people buying there, while I see people browsing at Macy's.

Dillard's sales continue to slide and their profit margins have taken a beating since COVID when they (and others) were able to sell more full price merchandise. I recently visited two of their stores in Ohio. Neither had any customers and one of them seemed to have literally no staffing in the home store or the cosmetic/jewelry section that was just off the mall. Macy's, in contrast had some customers and you could find staff. Owning mall real estate may save you rent, but it's a declining investment in most places. Dillard continues to do buy backs in order to raise the dividend.

However, owning their own buildings means that they have a much lower threshold to break even. So even a slow store may be profitable. Plus who knows if they're getting incentives from the mall owner or city to stay open? I have noticed that Macy's has been very heavy on promotions the last couple of months which to me indicates that they are desperate for traffic, while Dillard's never seems to have a lot of sales. So it could be that the promotions were pulling people into Macy's to buy more at lower profit margins. I think Dillard's does some odd things for sure and feels a touch outdated, I can't explain things like permanently closing and walling off the most visible exterior entrance in Chandler AZ. But they seem to have a survival mentality that will likely keep them going for quite a long time.

Remember too that department stores were dying before the mall trend took off. Retail is very cyclical. One of the reasons department stores are struggling is the churning of brands. Many brands got heavily leveraged and closed or acquired (see the ridiculous Authentic Brands Group for example). But they're inevitably replaced by new brands. The last generation is working their way out of every picture, and the new generation is gaining momentum and traction to take all their space. The trend currently is that these new brands started as direct to consumer online, then realized that they sell a crap ton more with retail stores. They're more selective about sites of course so they're only going into diversified malls that have remained decently successful, but you go into a current trend regional mall like Fashion Island, UTC, Scottsdale Fashion Square, etc. And you see full stores and few vacancies. The brands are all the direct to consumer guys that were new and now they need real storefronts to introduce more people to their brands (think Warby Parker as a great example). But inevitably what will happen is they will reach a good position of market saturation and brand awareness. They'll decide they don't necessarily need to pay all that rent, employ all those workers etc.... And what will start to look good to them? That's right, Department Stores! This happens every generation and I do believe that it will happen again although I also believe there were too many malls built so only super regionals will make the cut. But the super regionals, the "A Malls" or whatever you want to call them are going to keep going.

[storewanderer]

Dillard's sales continue to slide and their profit margins have taken a beating since COVID when they (and others) were able to sell more full price merchandise. I recently visited two of their stores in Ohio. Neither had any customers and one of them seemed to have literally no staffing in the home store or the cosmetic/jewelry section that was just off the mall. Macy's, in contrast had some customers and you could find staff. Owning mall real estate may save you rent, but it's a declining investment in most places. Dillard continues to do buy backs in order to raise the dividend.

Stating Dillard's sales "continue to slide" is a flat out lie. They are outperforming the industry (that isn't saying much).
Dillard's sales in 2012 were $6.59 billion
Dillard's sales in 2019 were $6.2 billion
Dillard's sales in 2023 were $6.75 billion

This is a declining industry. It is losing sales. Companies in this industry are not doing very well...
Macy's sales in 2012 $27.7 billion
Macy's sales in 2019 $24.6 billion
Macy's sales in 2023 $23 billion

Dillard's is also doing these stock buy backs so they can continue to control their company and not lose it to hostile/activist investors. They actually seem to want to keep their dividend machine going over the long term. They aren't looking for the quick buck like so many other companies are... you do not like Dillard's and that is fine, you have a lot of valid reasons for that assessment some of which I agree with, but they are a very financially solid company and for how they run their business the results they post are very impressive. If various other department store operators had managed their business the way Dillard's does, we would still have a lot more department store chains in the US today.

[storewanderer]

However, owning their own buildings means that they have a much lower threshold to break even. So even a slow store may be profitable. Plus who knows if they're getting incentives from the mall owner or city to stay open? I have noticed that Macy's has been very heavy on promotions the last couple of months which to me indicates that they are desperate for traffic, while Dillard's never seems to have a lot of sales. So it could be that the promotions were pulling people into Macy's to buy more at lower profit margins. I think Dillard's does some odd things for sure and feels a touch outdated, I can't explain things like permanently closing and walling off the most visible exterior entrance in Chandler AZ. But they seem to have a survival mentality that will likely keep them going for quite a long time.

Remember too that department stores were dying before the mall trend took off. Retail is very cyclical. One of the reasons department stores are struggling is the churning of brands. Many brands got heavily leveraged and closed or acquired (see the ridiculous Authentic Brands Group for example). But they're inevitably replaced by new brands. The last generation is working their way out of every picture, and the new generation is gaining momentum and traction to take all their space. The trend currently is that these new brands started as direct to consumer online, then realized that they sell a crap ton more with retail stores. They're more selective about sites of course so they're only going into diversified malls that have remained decently successful, but you go into a current trend regional mall like Fashion Island, UTC, Scottsdale Fashion Square, etc. And you see full stores and few vacancies. The brands are all the direct to consumer guys that were new and now they need real storefronts to introduce more people to their brands (think Warby Parker as a great example). But inevitably what will happen is they will reach a good position of market saturation and brand awareness. They'll decide they don't necessarily need to pay all that rent, employ all those workers etc.... And what will start to look good to them? That's right, Department Stores! This happens every generation and I do believe that it will happen again although I also believe there were too many malls built so only super regionals will make the cut. But the super regionals, the "A Malls" or whatever you want to call them are going to keep going.

Dillard's has been running more sales since COVID but they made changes to how they handled clearance merchandise. Basically in the past Dillard's would do major clearance events at all stores with various items at 65% off in all stores then do storewide "additional 50% off" sale on clearance a few times a year chainwide, and then throughout the year on a store manager determined basis apply that "additional 50% off" to certain departments that had excess clearance inventory. After the stuff sat around for months and they tried to move it with the 65%+50% off then they'd finally send a bunch of it to a clearance store.

They changed the clearance strategy a couple years ago and the standard Dillard's Stores do few to no "additonal 50% off" clearance sales anymore (they still can... store manager discretion...) and while they will still have some racks with 65% off items, the items do not stay in the regular store at 65% off for long, they quickly get routed to the clearance stores to be dealt with/marked down further at the discretion of the clearance stores. This freed up additional markdown dollars for Dillard's to run more sales in the regular stores and so there are more 30% off etc. type sales on items that aren't clearance yet but will be soon in the regular stores. I think this has helped their sales trends in recent years be stable.

[veteran+]

With all that being said about Dillard's.............................I hardly think this is a retailer to be admired.

[jamcool]

Dillard’s sucess is that most of their stores are in smaller cities, where they are often the only full-line department store in town. Those places are not known for the desire for the newest fashion designs.