Kohl’s is latest retailer to show shoppers are splurging again

May 20, 2021, 4:56 PM UTC

In the latest proof point of how Americans, deprived of their national pastime of shopping for months last year, are making up for lost time, Kohl’s reported on Thursday that net sales rose 69.5% in the first quarter.

Such an astonishing increase for Kohl’s is largely attributable to its stores being closed for weeks a year ago. But the sales increase nonetheless was better than expected as Kohl’s, just like Target, Walmart, Home Depot, T.J. Maxx and Macy’s reported earlier this week, benefited from pent-up demand from shoppers armed with stimulus checks.

“The U.S. consumer is in a stronger position,” said Kohl’s CEO Michelle Gass on a call with Wall Street analysts Thursday. “Spending has picked up driven by stimulus, easing COVID restrictions and people resuming more normalcy in their daily lives.”

But that has benefitted all of retail, begging the question of how Kohl’s specifically can benefit this spending surge to shake off years of stagnation pre-pandemic. Gass recently got through a battle with activist investors over her plan to revitalize the 1,100-store chain.

That plan involves making an even bigger bet on activewear, one that has paid off so far for Kohl’s, remodeling more stores more quickly to beautify them and make them more efficient as e-commerce nodes, and in a major coup for Kohl’s, launching a beauty business with LVMH’s Sephora.

“We’re just months away from what is going to be one of, if not the biggest game changer, in our history,” Gass told Fortune. Kohl’s will start with 200 Sephora shops, offering the popular beauty brand a new home after its long deal with J.C. Penney ended amid that retailer’s decline.

Despite the jaw-dropping sales increase last quarter, Kohl’s net sales came in about 4% below 2019 levels. (For March and April, when rising vaccination rates helped ease restrictions, they were above 2019 net sales.) In contrast, both Target and Walmart are well above sales levels of that year, showing Kohl’s is facing pressure not just to recapture business lost to the pandemic but truly return to growth.

In addition to Sephora, Kohl’s has built up its stable of national brands like Lands’ End, Cole Haan, and Calvin Klein and is working on improving its home furnishings business, even as it will face tough competition from Target and Bed Bath & Beyond on that front. And it has shed a number of its week store brands, allowing it to de-clutter stores at a time e-commerce makes it less necessary for retailers to have so much stuff on the sales floor.

Buoyed by a strong start to the year, Kohl’s raised its net sales expectations for 2022 to an increase in the mid-to-high teens percentage range, compared to the previous outlook in the mid-teens. Part of that is Gass’ bullishness that Kohl’s will do well in its next big test: Back-to-School, which is only a few weeks away, and is Kohl’s busiest time of the year after the holiday season.

“It plays right into everything we’re doubling down on: athleisure, denim, etc. So we’ve always been a strong destination for back to school and I think we’ve never been set up as strongly as we are today,” says Gass.

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