By Aatrayee Chatterjee
(Reuters) -Department store chain Kohl's (NYSE:KSS) cut its annual sales and profit forecasts after posting a surprise quarterly loss on weaker consumer demand for its apparel and footwear on Thursday, dragging its shares down as much as 26% in early trading.
American shoppers are still prioritizing essential purchases over discretionary products like apparel, electronics and home goods, as they face dwindling pandemic-era savings and higher interest rates.
Discretionary spend of Kohl's middle-income customers continues to be pressured by a number of economic factors including high interest rates and inflation, while it has remained steady among high-income customers, Chief Executive Officer Tom Kingsbury said on a post-earnings call.
The department store chain's dismal quarterly report comes in contrast to some of the other retailers including Abercrombie, which reported strong first-quarter sales owing to its merchandise being more on-trend.
"Kohl's has been too reliant on other brands such as Sephora, Amazon (NASDAQ:AMZN), and now Babies R Us to drive traffic rather than distinguishing its core brand identity," Emarketer senior analyst Zak Stambor said.
Shoppers are willing to spend if they see value in an on-trend, well-made dress from Abercrombie, or a healthy salad from Sweetgreen, he added.
Kohl's also said that lower clearance sales compared to last year resulted in a more than 600-basis-point drag on comparable sales that decreased 4.4% in the first quarter.
The company forecast fiscal 2024 net sales to fall between 2% and 4%, compared with its previous expectation of between a 1% drop and a 1% rise.
It also expects annual earnings per share in the range of $1.25 and $1.85, compared with its previous forecast of $2.10 to $2.70.
The company reported a per-share loss of 24 cents in the first quarter, while analysts were expecting a profit of 4 cents per share, according to LSEG data.
Kohl's was trading at $20.38 and was on track for its worst day ever, while its peers Macy's (NYSE:M) and Nordstrom Inc (NYSE:JWN), which is reporting later today, were down about 3% each.