By Uday Sampath Kumar
(Reuters) -Kohl's Corp new chief executive said on Wednesday it would "take some time" to turn around the business and reduce reliance on margins-sapping discounts after the retailer swung to a surprise quarterly loss and forecast downbeat profit.
Retailers have turned to steeper discounts and promotions to clear excess stocks of casual apparel after customers singed by surging costs of rent and food over the last year cut back on spending on non-essential products.
Steep discounts fueled a more than 10 percentage point decline in fourth-quarter gross margins to 23% at Kohl's (NYSE:KSS) and a surprise holiday quarter loss.
Chief Executive Officer Tom Kingsbury said Kohl's had rolled out measures such as shifting its product assortment to focus on in-demand categories including work wear to drive more consistent sales and earnings.
The company also plans to reduce its reliance on general promotions and test new pricing strategies.
"I want to be realistic in setting expectations," Kingsbury said. "The full impact of our efforts will take some time. It won't happen overnight."
Kingsbury, who was given the top job on a permanent basis last month, is backed by activist investors Macellum Advisors and Ancora Holdings.
Kohl's executives said lower consumer demand due to an uncertain U.S. economy and fears of rising borrowing costs are also contributing to what will likely be "transitional" year for the company.
Shares of the company lost 2.8% in choppy trading. They fell as much as 13% in premarket trading.
The company expects fiscal 2023 earnings per share of $2.10 to $2.70, compared with estimates of $3.20, according to Refinitiv IBES data.
Other U.S. retailers including Walmart (NYSE:WMT) and Target Corp (NYSE:TGT) have also taken a conservative approach to their 2023 expectations.
"Improving margins in this macro environment is all about cutting costs because revenue growth is nonexistent for department stores and mall-based operators," CFRA analyst Zachary Warring said.
Separately, apparel maker Abercrombie & Fitch also missed holiday quarter earnings estimates, hit by higher costs of cotton.