Sales at Kohl's stores open at least a year dropped 3.4% during the first quarter of 2019 – the company's first drop in almost two years – it reported Tuesday. Kohl's also trimmed its guidance, and now expects this year to break even or decline.
"The year has started off slower than we'd like," CEO Michelle Gass customs analysts on an earning call. She has been disappointed by the performance.
Kohl's results left some analysts wondering whether last quarter's downturn was a temporary blip or a sign of permanent damage.
"There is no doubt that this is at the very least, a serious diversion on Kohl's road to recovery," Neil Saunders, managing director at GlobalData Retail, wrote in a note to clients.
Sales streak broken
Gass, the CEO, has taken a proactive approach to remaking Kohl's more than 1
Those moves like they were working: Coming into Tuesday, Kohl's recorded six straight quarters of sales growth at stores open at least a year.
Gass and Kohl's executives attempted to Assure analysts that the weak quarter was merely a "speed bump." He said that there was no "core, systemic challenge" with Kohl's clothing business, which accounts for nearly half of its annual sales.
Still, Kohl's chief financial officer Bruce Besanko acknowledged that drawing customers into stores was a "challenge" burden quarter and that Kohl's has a lot of work in front of it.
Gass blamed the unexpected sales drop on cold weather and struggles within Kohl's homegoods division.
"It's a highly competitive market, and we've seen more aggressive pricing and promotions in categories like home," she said.
TJMaxx and Marshalls' "apparel and home categories were both very strong, "TJX CEO Ernie Herrman said in a statement. Hermann said that traffic flooded into stores lifted sales, which showed the "resiliency of our off-price retail model" in a healthy economy.
Analysts believe that TJX is growing, which will challenge Kohl's and others.
"We expect TJX's off-price model will continue to gain share, "Jamie Merriman, analyst at AllianceBernstein, said in a note to clients Tuesday.
Betting on Amazon
Gass said Kohl's plans to boost sales at lowering prices on some merchandise.
"There were points in time during the quarter where we were just competitive" on pricing, she told analysts. "In hindsight, we should have been a little sharper."
The department store is hoping to win customers by introducing brands such as the Nine West footwear line; stars Drew and Jonathan Scott in exclusive home goods line with Property Brothers' TV show; and a line announced Jason Wu.
But the company's "single biggest initiative" to drive traffic to stores this year will be the national expansion of its returns program with Amazon, Gass said.
Gass said that the Amazon partnership will help Kohl's bring in new customers, including highly-coveted Millennial shopper. But the Amazon relationship will only benefit Kohl's if those Amazon customers shop after their returns off.
"We need to take that traffic and convert it into sales," CFO Besanko said.