On Thursday, Kohl’s Corp. (NYSE: KSS) reported its first quarterly comparable sales which resulted in a 3.9% drop, a record low since the height of the recession in 2009. Kohl’s stock, in response, slumped falling more than 6% during after-hours.
Kohl's is not the only department store operator who suffered from shrinking sales. Similar story took place when Macy’s Inc., U.S. leading department operator, reported a steeper-than-expected drop in quarterly comparable sales on Wednesday.
Both Macy's and Kohl's cited weather has been a factor behind its weak sales. However, Kohl's, known to be the most weather-sensitive among department store operators, said macro-economic issues seemed to have dented sales more than cool temperatures.
"They are not buying apparel. That's the simple answer," Wes McDonald, Kohl's chief financial officer, said during a call with analysts. “Until we get some more excitement in apparel, it's going to remain, in my opinion, a replenishment market."
All U.S. department stores are suffering as shoppers spend more on electronics, homes and cars than on clothing. Yet two other factors deteriorate Kohl’s situation:
First is increasing cost. Kohl's net income fell about 87 percent to $17 million, or 9 cents per share, in the quarter ended April 30, largely due to a $64 million in impairments, store closings and other costs. Moreover, Kohl’s believes that this situation will not end in the first quarter this year and it claimed that costs in the current quarter would be higher than anticipated due to employee termination packages, severance packages that would cost $105 million-$110 million in the quarter, resulting in predictable significant labor costs.
Second is the pressure imposed by E-commerce such as online retailer Amazon.com and Fast-fashion chains like Forever 21. In other words, shoppers are being drawn away from Kohl’s.
"It's clearly a tough time to be a (traditional) retailer right now," Retail Metrics analyst Ken Perkins said.