Kohl's cuts profit forecast, becomes latest retailer to warn of inflation pain

A Kohl’s department store in New York
A sign marks a Kohl’s department store in the Brooklyn borough of New York, U.S., January 25, 2022. REUTERS/Brendan McDermid

May 19 (Reuters) - Kohl's Corp (KSS.N) cut its full-year earnings forecast on Thursday, joining some of the largest U.S. retailers in warning that red-hot inflation is starting to erode profit margins and consumer spending power.

Walmart Inc (WMT.N) and Target Corp (TGT.N) reported substantial drops in quarterly earnings this week due to surging fuel and freight costs, and warned rising prices are pushing consumers to prioritize spending. read more

Growing evidence of four-decades high inflation seeping into the economy sparked a sell-off in retail stocks, with Kohl's shares sinking about 14% this week.

Demand at Kohl's department stores, which dedicate most of the shelf space to products such as apparel, "considerably weakened" in April as consumers started to feel the pinch of soaring prices, Kohl's Chief Executive Michelle Gass said.

The impact of inflation is not expected to abate any time in the near future, company executives said.

The company expects sales to improve in the second half of the year as Kohl's expands its partnership with LVMH-owned beauty products retailer Sephora to more stores.

Shares of the company, which reiterated that it is in talks with multiple parties for a potential sale, rose about 2% to $44.

Kohl's net sales fell 5.2% to $3.47 billion in the first quarter. On an adjusted basis, the company earned 11 cents per share, missing estimates of 70 cents, according to Refinitiv data.

"We expected a weaker Q1 for Kohl's, but not to this extent. Inflation continues to eat into consumer wallets and we are starting to see it finally creep into consumer habits," CFRA Research analyst Zachary Warring said.

Kohl's lowered its full-year per share forecast for adjusted earnings to between $6.45 and $6.85, from $7.00 to $7.50.

The company expects annual net sales to rise as much as 1%, compared with its previous forecast of a 2% to 3% increase.

Reporting by Uday Sampath in Bengaluru; Editing by Shounak Dasgupta

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Uday has been reporting on U.S. retail and consumer companies for over five years and has written multiple analysis pieces on the space, including about a flurry of mergers in the toy industry, how an aging population benefited the golf industry and how weak sales from retailers spooked global markets. Uday has a bachelor's degree in commerce from Christ University Bangalore, India.