Dive Brief:
- Kohl’s has made progress on its goal to reduce inventory, with levels down 6% YoY to $3.5 billion in Q1.
- The decline fell in line with the retailer’s planned reductions, CEO Tom Kingsbury told analysts last week, adding that Kohl’s has started regular inventory clearance initiatives to jettison slower-moving stock, free up cash and increase turnover.
- “We feel good about our Q2 inventory levels and are well positioned from a liquidity perspective with plenty of room to chase,” Kingsbury said. “This is a positive given the persistent macroeconomic headwinds.”
Dive Insight:
After operating profit dived by 85% in 2022, Kohl’s has taken steps to reduce its stock levels and catch up with some of its department store rivals that outperformed it on inventory management last year.
The goal for Kohl’s is to avoid painful markdowns and leave the retailer room to chase inventory, especially merchandise that is performing well in the market.
Kohl’s made headway on that goal in Q1. CFO Jill Timm said that “we feel good about our inventory level entering Q2” and the retailer remains “focused on driving turnover.” Kingsbury added that management was “happy with the progress we have made from the end of January to now” and that Kohl’s could make more progress levels in Q2.
Accomplishing that entails “having eyeballs on the inventory levels at all times, making sure that we're delivering what we said we're going to deliver,” Kingsbury said.
In the short term, clearing goods will weigh on the company’s profits. While Q1 gross margin was up modestly from last year — thanks in part to lower freight costs — Timm noted that Q2 margin will be down compared to 2022 as Kohl’s focuses on clearing inventory.
Keeping inventories lighter and turning faster gives Kohl’s the budget, cash and space to chase inventory rather than plan far in advance. Kingsbury noted on the call that “one of the things that I learned in off-price is if you're open to spend, there's so many benefits with that.”
Dan Plas, Kohl’s SVP for enterprise digital and e-commerce, said at an industry conference earlier this year that the retailer aims to be able to “read and react to where consumers are and then quickly partner with our supply partners” to meet demand with product.
TD Cowen analysts led by Oliver Chen argued in a research note that “meaningful headway in improving” business at Kohl’s stores goes “hand in hand with merchandise and inventory planning.”
Elaborating, the analysts said, “We believe store traffic is driven by newness and faster inventory turns, which could lead to better productivity.”
