Online demand lights up Kohl's holiday quarter, bets on activewear for growth

Kohl’s Corp posted holiday-quarter profit and sales beyond market expectations on Tuesday, as it reined in costs and Americans loaded their online shopping carts with not just essentials but also leisure goods.

As consumers bought everything from leggings and sweatshirts to kitchen electrics, the company’s digital sales surged to account for 42% of net sales in the fourth quarter.

The COVID-19 pandemic has hobbled many non-essential retailers including JCPenney and Stein Mart Inc, but Kohl’s has managed to survive it by doubling down on its online business.

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It has also entered into partnerships with PVH Corp’s Calvin Klein and LVMH-owned beauty chain Sephora to attract younger crowds to its stores.

Kohl’s is also betting on the rise in demand for activewears such as running shoes and workout clothes as more people turn to health and wellness during the pandemic.

The company is planning to increase the space for such products in its outlets by adding brands such as Eddie Bauer and expanding those offered from HanesBrands Inc’s Champion.

“We see this as really instrumental to driving overall top line given the productivity of those categories especially in our stores,” Chief Executive Michelle Gass said on an earnings call.

Overall net sales declined 10% to $5.88 billion in the quarter, but was above expectations of $5.86 billion.

Costs fell 8%, helping Kohl’s earn $1.07 per share on an adjusted basis, above $1.01 expected by analysts.

In 2021, the mid-priced chain expects to earn between $2.45 to $2.95 per share and net sales growth of mid-teens percentage range, both largely in line with Wall Street estimates.

However, some analysts were skeptical about the forecast.

“Kohl’s and other department stores have a history of over-promising and under-delivering. The forecast Kohl’s provided today is overly optimistic,” CFRA Research analyst Camilla Yanushevsky said.

The company said it would buy back shares worth between $200 million and $300 million.