The death of department stores? Not so fast.
Kohl's (kss) on Thursday reported better-than-expected financial results as shoppers who had stayed away in droves earlier in the year starting showing up again just in time for back-to-school shopping season. In addition, the retailer's efforts to manage its inventory more efficiently lifted profit.
In the quarter ended July 29, Kohl's comparable sales (a metric that excludes new and recently closed stores) fell 0.4%, not great, but not nearly as severe as the 1.5% drop Wall Street analysts feared, according to Consensus Metric. Even better, Kohl's net income rose to $208 million, or $1.24 per share, above the $1.19 expected by analysts. And this despite net sales falling 1% to $4.14 billion.
To be sure, it was a sixth straight quarter of sales declines, but the results suggest Kohl's strategy to contain a secular decline in its business is starting to take hold. These efforts have included shrinking hundreds of stores rather than closing them, on the bet that Kohl's needs some presence near its customers to offer online order pickup or to fill e-commerce orders, but perhaps doesn't need sprawling emporia everywhere.
As Kohl's CEO Kevin Mansell told Fortune last month in an in-depth interview, the chain now holds inventory down as much as 10% at those smaller stores. With the help of more refined planning and demand forecast tools, it still has what it needs on hand, but can lower the risk of having to sell clearance leftover merchandise. Kohl's has also been turning itself into a serious e-commerce player: In the last three years, it pumped $2 billion into its technology and $1 billion into its stores.
Most encouragingly for Kohl's, shoppers who were AWOL in the spring appeared to be showing up again. That is particularly promising for Kohl's given that back-to-school season is now underway: Kohl's gets about 16% of annual sales during that six-week shopping blitz.
"The traffic momentum that we saw in the combined March/April period accelerated in the second quarter," Mansell said in a statement. Hopefully for him, that momentum won't let as Kohl's and all of retail heads toward the holiday season.