Kohl's slashes 2022 forecasts as inflation squeezes demand

Reuters

Published Aug 18, 2022 07:23AM ET

Updated Aug 18, 2022 10:01AM ET

By Deborah Mary Sophia

(Reuters) -Kohl's Corp cut its full-year sales and profit forecasts on Thursday, squeezed by steeper discounts and higher costs amid dwindling demand for clothing and shoes in the face of high inflation, sending its shares down 5%.

The U.S. department store chain joined top retailers including Target Corp (NYSE:TGT) and Best Buy Co (NYSE:BBY) to warn of a profit squeeze, as decades-high inflation has made Americans wary of opening their wallets for apparel and other discretionary goods.

The demand slump has left several retailers with bloated inventories, forcing them to offload excess stocks through steep discounts and clearance sales heading into the back-to-school season. Kohl's (NYSE:KSS) is offering up to 80% discount on its website.

Kohl's is taking a bigger hit as it caters to middle to low-income customers and leans toward more casual styles, which means it is unable to take advantage of resilient high-income consumers who have lifted sales of dressy clothing and high-end fashion.

"(Our results) reflect a middle-income customer that has become more cost-conscious... we are seeing customers make fewer shopping trips, spend less per transaction and shift towards... private brands," Chief Executive Michelle Gass said.

While inflation has hit the broader industry, analysts say Kohl's is also reeling under its own missteps in getting the right inventory, leaving it with a jumble of disjointed products in stores.

"The company has lost the plot in terms of merchandising and appears to be taking a seemingly random approach to buying... quite simply, Kohl's is headed rapidly in the wrong direction," said Neil Saunders, managing director at GlobalData.