Q1 2021 Kohls Corp Earnings Call
Yes.
We are making significant progress on our vision of becoming the most trusted retailer of choice for the active and casual lifestyle since.
Since launching our strategy last October we have shown strong sequential improvement in our performance and have announced several important new strategic partnerships that will accelerate our momentum.
We remain firmly on track to achieving our 2023 strategic goals and we will take a big step forward in our pursuit of this year.
We will discuss later in the call based on our first quarter results, we are raising our full year 2021 guidance.
For today's call I'll give you color around our first quarter performance and then talk about the confidence we have in our strategy given the synergy our plans have with evolving consumer behaviors favoring a more casual and active lifestyle.
Bill will then discuss our Q1 results in more detail and updated 2021 financial outlook.
Let me start by touching on our first quarter performance.
As I indicated our results exceeded expectations across the board sales strengthened as we moved through the period with March and April combined sales positive as compared to the same period in 2019.
Store sales more than doubled year over year due to continued traction against our strategy and lapping last year's store closures.
We experienced an acceleration in customer visits as the quarter progressed, which contributed the majority of our total Q1 sales upside.
Our digital business also had a great quarter with sales, increasing 14% to last year and up more than 40% to 2019.
Digital accounted for 30% of sales with stores continuing to support growth by fulfilling nearly 40% of digital sales.
From a product perspective, all of our lines of business exceeded plan and increased significantly year on year with the best performing areas being those most impacted by the pandemic, namely men's and women's apparel.
In many areas of our business have returned to or are exceeding pre pandemic sales levels.
Active sales showed the most significant growth in the first quarter and increased at a mid teens percentage rate relative to the first quarter of 2019. We also maintained momentum in our home business, which was up low double digits on a 2 year basis.
We are making great progress in our efforts to improve profitability.
We delivered a 7% operating margin the highest Q1 rate in 8 years.
This performance was driven by continuing to execute against our strategy, including strong inventory management, our pricing and promotional initiatives and expense discipline.
In addition, we capitalized on a favorable industry backdrop that provided for greater full price selling.
So in summary, we had a great first quarter and have clear business momentum as we look ahead.
Let me now discuss the confidence we have in our strategy, which will uniquely position calls to drive strong growth in the years to come.
As we have all seen recently the U S. Consumer is in a stronger position spending has picked up driven by stimulus easing COVID-19 restrictions and people resuming more normalcy in their daily lives.
These factors are helping to reignite growth for the retail industry and we are positioned extremely well to capitalize on this acceleration.
Last October we debuted a new strategy with an even more significant pivot towards the active and casual lifestyle.
And as we sit here today that strategy has never been more relevant.
At Kohls everything starts with the customer and our research analytics and sales trends validate that 3 key consumer behaviors will only grow in importance.
Consumers are looking for a more active and casual lifestyle.
And even easier and more convenient shopping experience and.
And clear and compelling value.
First we expect the consumers will continue to live more actively and casually as normalcy returns.
As more people returned to work resumed travel and attend events and gatherings. They are seeking out new and updated apparel, while maintaining the preference for casual comfort, which fits squarely into the product categories. We are taking a leadership position in.
Against this backdrop cause of physicians really well.
Our commitment to the active category is differentiated in the marketplace and our strategies continue to benefit our business with a goal of growing the category to more than 30% of our sales we are increasing dedicated space in store, expanding our product assortment and aggressively addressing white space opportunities in athleisure and.
And inclusive sizing, we're making progress as evidenced by active sales nearly doubling year over year in the first quarter growing to 23% of sales up 300 basis points from last year.
From a brand perspective, our key national brands, Nike under armour, and Adidas continue to perform very well driven by the ongoing expansion of the assortment delivering innovative and relevant product to our customers.
We also continue to be pleased with the performance of the champion brand, which grew multiples for my small base in the first quarter.
As it relates to our new private athleisure brand flex we are very encouraged by the customer reaction, we've seen to date and the initial sell through.
We will build on the early success by broadening the assortment this fall and we will expand it to 500 stores.
And as we've previously discussed we are excited to be expanding lands and the 300 stores and introducing Eddie Bauer into 500 stores. This fall each of which addresses sizable white space opportunities in our outdoor offering.
We're really encouraged with the ongoing strength in active across all product areas and we are equally excited about being a destination for iconic casual brands like Levi's soon Tommy Hilfiger, and Calvin Klein and value oriented private brands like Sonoma and so.
We have significant market share opportunities across many casual categories, whether it be in key essentials for the entire family and in categories like denim, where we already have a leading market share position and where they are they clear resurgence underway.
Let me share with you an update on our efforts across our other key lines of business.
In womens our bold actions during 2020 have positioned us for improved performance of this fall when all of our efforts around clarity and merchandising come together.
On last quarters call, we discussed our optimism around the initial progress we have been seeing in our Sonoma and <unk> brands and I'm happy to share that these brands further accelerated in the first quarter.
We're also seeing strong customer response to other key private brands, including Croft, <unk> Barrow, Lauren Conrad and 9 west.
From a product perspective, our women's business was led by strong growth in active increased demand for shorts in denim and our intimates business that continues to show resilience.
We also saw improving trends in casual dresses.
Men's has also been an area that has undergone transformation during the past year.
Similar to women's we've exited brands and of allocated more space to active and big and tall, while shrinking the mens dress pad.
These moves have improved overall clarity increased category productivity and made room for new brands.
In 2021, we will deliver a significant amount of newness with the introductions of Calvin Klein, Eddie Bauer, Hurley, and Tommy Hilfiger, where we'll offer men's sportswear styles with the brand's iconic classic American cool designs.
The addition of each of these brands further our pursuit of becoming the leading destination for the active and casual lifestyle and we look forward to their contribution beginning this fall.
Turning to our children's business demand returns of 2019 sales levels driven by strong growth in active and toys as well as increased demand for boys' and girls' apparel as more kids return to school the spring.
We've simplified our private brand strategy around jumping beans, so in Sonoma and are expanding our active presence through converse Hurley under armour outdoor and vans.
Looking ahead, we are well positioned for the important back to school season with inventory building well ahead of peak week.
We anticipate a more normal back to school season. This year following last year's season that was materially impacted by the pandemic.
In summary regarding our apparel business, we are seeing a nice recovery and we will fuel the customer demand by driving relevancy as consumers return to more normal fee in their daily lives.
I'd like to now transition to our upcoming launch of Sephora at Kohls, which we couldn't be more excited about.
This partnership will transform calls into a leading beauty destination and is expected to drive significant incremental sales and new customer acquisition.
As we shared last month, we will offer more than 125 prestige beauty brands, many of which will be exclusive to sephora and sephora at kohls.
We are in the midst of preparing for the August 1st launched online in subsequent rollout to the first 200 stores this year.
Beauty associate recruitment has begun with staffing and training to be complete by the end of July.
Customers will see construction in stores in the weeks, leading up to the fall of store openings.
This will be about a 6 week process for each store and we're working hard to minimize any disruption.
We are also positioning certain brands such as Calvin Klein in categories like active around the Sephora kohls shop to capitalize on cross selling opportunities. We look forward to sharing more on the launch during our next earnings call in August.
Now, let me discuss how we are providing our customers, an even easier and more convenient shopping experience.
Starting first with the stores.
Our off mall locations will be even more relevant in a post COVID-19 era as customers have appreciated the safety and convenience over the last year and our customers will encounter an updated an elevated shopping experience.
In addition to the new Sephora of coal shop, we are refreshing stores and re flowing categories to provide a more compelling shopping environment with the most relevant brands and categories positioned at the front of the store.
Yeah.
Some of our other efforts include improving the clarity and merchandising presentation. During the first quarter, we executed against our day Densification strategy by removing fixtures off the floor in each store.
We also just recently reopened fitting rooms in our stores to improve the shopping experience of more and more customers returned to stores.
And as the country more fully reopens, we expect our convenient off mall presence to continue to be a competitive advantage.
We are also enhancing the digital experience we continue to improve the overall site experience. While further embedding personalization, we have been especially pleased with the momentum we're seeing the customers use of the Kohl's app during the first quarter. The App accounted for 1 third of digital sales driven by strong double digit user growth and <unk>.
Conversion rates.
And we continue to provide an industry, leading omni channel experience during the first quarter, our stores provided foundational support to our digital sales growth fulfilling nearly 40% of sales, which was up slightly to last year as customer pickup increase with stores opened for the full period.
Our leading Omnichannel platform will continue to enable us to create an inviting experience tailored to deliver ease and convenience, while also providing inspiration and discovery of shoppers.
The final thing I want to touch on is the importance of providing clear and compelling value.
All of those recognized as a leader in delivering compelling value, whether that's through our iconic kohl's cash our kohl's rewards loyalty program for our Kohl's card credit program.
In past quarters, we share that through customer research, we discovered that we had an opportunity to improve how our value is understood by customers, especially new customers.
Over the past year, we have made big strides to improve the value communication the delivery to our customers last fall, we launched our Kohl's rewards loyalty program, simplifying and leveraging kohl's cash as the reward anchor and more fully integrating the program across our digital omni channel and store capabilities.
And we have improved and simplified our value equation by continuing to scale, our pricing and promotional strategies, allowing customers to more quickly get to the end price and see the value.
These initiatives are working and we look forward to further traction as we scale our efforts.
Before I hand, it off the Jill let me summarize my comments today.
As evident in today's results. We are pleased to see our business continue to build momentum.
And with the impact we're seeing from our initiatives.
I'm, even more optimistic about what the future presents.
Much of our strategic work is still underway with significant benefits ahead of US. We continue to believe we are set up for a multi year improvement in sales and profits and remain firmly on track with our 2023 strategic goals.
In closing our strong results and promising outlook wouldn't be possible without the incredible efforts of our associates across the country.
Your ongoing commitment to kohls, our strategy and our customers has further differentiated and strengthened our positioning in the marketplace.
And has paved the way for an exciting and bright future.
With that I'll now turn the call over to Joe who will provide details on our financial results and updated guidance.
Thank you Michelle and good morning, everyone. This morning, I am going to review, our first quarter results discuss our capital allocation actions during the quarter and then provide details on our updated 2021 guidance outlook.
Let me start with our first quarter results.
As Michelle touched on we are off to a strong start in 2021 with Q1 results exceeding our expectations across the board.
Net sales increased 69% with store sales more than doubling and digital sales up 14%.
Sales accelerated during the quarter with combined margin April sales, increasing low single digits relative to 2019, driven mainly by the momentum in our store sales.
Other revenue, which is primarily credit revenues declined, 16%, which was slightly better than we expected.
Turning to gross margin.
Q1 gross margin was 39% of.
Materially from last year's Covid impacted 17, 3% and.
And up over 220 basis points from the first quarter of 2019.
Our efforts to drive margin expansion continued to pay off.
We managed inventories tightly resulting in less clearance as a percentage of sales.
Further scaled our pricing and promotion optimization strategies during the quarter.
We also benefited from a favorable industry backdrop, which provided for greater percentage of full price selling.
While we expect some of the tailwind for ease of inventory rebuilds across the industry. We remain confident in our ability to further enhance our margin structure for our strategic initiatives.
We are also monitoring cost headwinds related to industry wide supply chain disruptions.
We have navigated the challenges very well to date, but acknowledge that there still remains a lot of uncertainty as we look to the balance of the year.
Now, let me discuss SG&A.
In Q1, SG&A expenses increased 9.8% to $1.2 billion driven by significant top line growth.
As a percentage of revenue SG&A expenses leveraged against both 2020 and 2019 as we made strong progress against our marketing and technology efficiency efforts.
We reduced our marketing to sales ratio to 4.2%.
And lower technology spend by more than 15% versus last year. In addition.
Relative to last year improved store labor productivity was the key driver of the improvement.
As we look ahead, we expect wage inflations remain of headwinds. However, we will continue to drive efficiencies through increased store productivity and lower marketing and technology spend.
Our strong gross margin and SG&A expense efforts during the quarter translated into a 7% operating margin an increase of 295 basis points to 2019.
These results give us confidence that our strategies are working and we will hit our stated annual goal of 7% to 8% operating margin by 2023.
Last let me touch on some additional financial items.
Non recurring items for $201 million related to the completion of our $1 billion debt tender offer during the quarter.
Depreciation was $16 million lower than last year due to reduced capital spend in 2020.
Interest expense increased $9 million versus last year due to higher average debt outstanding during the quarter.
On a GAAP basis for the quarter, our net income of $14 million and earnings per share was <unk> 10.
Excluding nonrecurring items for the quarter adjusted net income was $165 million and adjusted earnings per share was $1.5.
Turning to the balance sheet.
We ended the quarter with more than $1.6 billion of cash and cash equivalents.
Inventory at the end of the quarter was 25% lower than the prior year and down 28% to 2019.
This marked another 10 year high in inventory turnover.
Like other retailers, we are currently facing some industry wide supply chain challenges.
However, we continue to feel good about our ability to manage the these headwinds and are closely monitoring the sourcing of our private brands.
Turning to cash flow, we generated positive operating cash flow of $278 million in the first quarter, driven by strong inventory and expense management.
Free cash flow was $186 million.
Capital expenditures for $59 million in the first quarter, and we continue to expect to spend $550 million to $600 million in 2021.
Driven by our Sephora partnership store refresh activity and our new E Commerce fulfillment center.
Now let me provide you an update on our recent capital allocation actions.
During the first quarter, we optimize our debt structure by issuing $500 million of new bonds.
And tendering over $1 billion of higher rate of shorter term bonds.
Through these efforts, we reduced our weighted average interest rate by more than 100 basis points and improved our leverage profile supporting our long term commitment to maintaining our investment grade rating.
We also resumed our share repurchase program during the first quarter repurchasing 784000 shares for $46 million.
We continue to plan to repurchase $200 million to $300 million of shares for 2021.
And last week, our board of directors declared a quarterly cash dividend of <unk> 25 per common share.
The dividend is payable on June 20, <unk> to shareholders of record at the close of business on June 8.
Turning to our guidance outlook for 2021.
We are off to a very strong start to the year and based on our Q1 results we are raising our full year outlook.
That said, we are approaching our updated financial outlook prudently.
Still early in the year and there remains uncertainty around how the recovery unfolds.
<unk> of the stimulus tailwind for the retail industry and supply chain headwinds.
Based on this we are guiding the year as follows.
Net sales to increase in the mid to high teens percentage range up from our prior expectation of of mid teens increase.
Operating margin to be in the range of 5.7% to 6.1% up from our prior expectation of 4.5% to 5%.
And EPS to be in the range of $3.80.
The $4.20.
Excluding nonrecurring charges.
Up from our prior guidance of $2.45 to $2.95.
This guidance now assumes interest the span of $270 million, which is lower than our previous expectations due to our debt reduction.
We continue to expect our full year tax rate to be approximately 25%.
I would also like to call out 1 additional item embedded within this guidance.
For the second quarter, we're planning SG&A expense to be higher than the Q1 rate as we invest in the Sephora partnership launch and incur expenses associated with our store refresh activity.
In summary, we are very pleased with our strong start to 2021 and remain confident in our outlook for the balance of the year.
Our efforts to drive top line growth and improve our profitability are gaining traction and we remain on pace to achieve our 2023 strategic goals.
We are happy to take your questions at this time.
Yeah.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key please stand by while we compile the Q&A roster.
Your first question comes from the line of Bob <unk> with Guggenheim Partners.
Yes.
Just kind of couple of questions.
Can you talk a little bit about just the trends in store traffic I don't know if you want to go monthly or the last few weeks just love to understand what youre, saying it sounds like stores definitely come back and sort of how you feel about that progress and Michelle.
Michelle I was just wondering if you could talk a little bit about the denim category I think theres a lot of talk around the debt.
Resurgence if you feel like Youre getting your fair share. How do you think you are positioned in that category as we reopen here. Thanks.
You bet. Thanks, Bob for the question Michelle here, so to your first question around stores and traffic.
That accounts for a lot of the upside in the build that we saw throughout the quarter.
And as Joe mentioned, our comps were positive for 2019 for the March April time period combined in February was a little tough weather disruption and the like but as the spring arrived vaccine distribution clearly the stimulus, but candidly our own strategy really working.
Working a lot harder so we felt good about that momentum.
And the language that a lot of that was driven by the stores acceleration and that has continued into may so the.
We feel good and it's worth noting as well that our sales were up call it 70% close to 70% for the quarter and our apparel business in aggregate across men's women's and kids exceeded that so we feel really good about the customer of being ready to spend on the our spending on the apparel categories and the <unk>.
Related to your question on denim, we also feel quite optimistic about that category Corp is a leading retailer of denim and I think what really sets us apart Bob is that we have a great portfolio of both.
Thought ask her denim national brands.
Particular, Levi's and then complemented with great private brands in the denim category of investing more in brands like like Sonoma, So, even Lauren Conrad and Sonoma and so we're positive for 2019 of the women's category and denim was a part of that and then revise really accelerated through the quarter.
We're seeing strength across the board, especially in the women's denim. So all of that being said I think that the sets us up extremely well as we head into the back to school season, where denim plays a key role and that will be complemented with the strength in our active categories that also will play a significant role in the back to school season.
Great. Thanks for sure.
Thanks, Bob.
Your next question comes from the line of Paul Trussell with Deutsche Bank.
Good morning, and.
Congrats on the really strong start for the year.
I wanted to dig a bit into the guidance provided.
You just mentioned and reiterated that the March April period was up versus 2019. It sounds like there is some strength continuing in the May maybe you can elaborate on that but more importantly.
Better understand.
May or may not sustain over the balance.
Ill leave the floor.
<unk> sales.
The whole suggests that the top line will remain low.
The Donaldson 19, more or less for the year.
And then similarly, as we look at the guidance updated guidance for margins I'd just be curious in terms of kind of order of impact what is contributing.
The better than expected performance as we think about some of the full price selling.
Or pricing and promotional strategies et cetera, the tool.
The implemented thank you.
Thanks for the question why don't I kick it off and then I'll hand, it over to Joel to speak to the margin piece.
So first of all to your question on guidance I mean, what I would say the that is we clearly have had a very strong start for the year with Q1 results exceeding expectations across the board and we're pleased to see the top line momentum as well as the flow through to the bottom line hitting of 70% operating margin as you know.
We put out there the longer term goal of 2023 to be a net 7% to 8%. So that does give us great confidence we did raise our financial guidance as you know and a lot of that is driven off of our strategies that we see working so I was just in the prior question speaking to the strength of apparel that are active.
<unk> being up double digits for 2019.
Seeing active strength across the board across all lines of business.
Et cetera, and we're continuing to see it in categories like home play out.
Candidly the reason why we guided as we did was that there's just still uncertainty out there I mean, yes, we are optimistic on the emerging out of the pandemic and vaccine distribution than you know what.
What's happened with stimulus of more money in People's pockets.
But there continues to be uncertainty as we approach the back half of the year I will say, we are leaning into every opportunity to chase demand in I would say consumer behaviors quite lend themselves to our new strategy, but as it relates to.
Headwinds and Joel speak to this in a moment related to possible margin handling of their cost headwinds were just being prudent but let me assure you that we are going after every and all top and bottom line opportunities for the company as we look to the the remainder of the year and I'll have Jim.
I'll add more commentary as it relates to the questions of our margin.
Sure implied for HOKA.
We do feel really pleased with the strong start.
Early Q1 of the smallest quarter of the year. So, although we feel optimistic with the strategies and the consumer backdrop. We also net of a lot of uncertainty persists and our margin expansion, we tightly managed inventory for the third quarter in a row you saw us improving our churn the second quarter of ROE at like 2 of 10 year high.
Obviously, the headlines to a lot less clearance selling that's definitely in the wheelhouse of our strategies gives us confidence we're going to hit that for ex turn as we mentioned to you by 2023. In addition to that you know we've been working on the pricing of promotional optimization strategies and I would say of the mixed here. Some of this is just our strategy as you saw lot less stackable.
<unk>, we are leaning more on the pricing events for simplifying that value equation, and we're really seeing that resonate with the customer for are also taking advantage of the macroeconomic backdrop that there is less inventory. There is more full price selling that is available to us. So we're taking advantage of that now we do.
Believe as the year progresses, you know people are going to build back into some of the inventories and some of those tailwind for us and then as well we know are monitoring supply chain disruptions, which we feel like we've managed very well, but we're not sure how long that will persist as we move into the balance of the year and then last week digital.
Some of bigger portion of our business as the year progresses, as well and that with the cost of shipping will be of headwind. So those are the reasons. We took a prudent approach for the rest of the year.
You want to underscore Michelle and my confidence in the strategy that we have outlined and the fact that we do believe we will continue to further enhance our margin structure.
Thank you for the color best of luck.
Your next question comes from the line of staff listening with Jefferies.
Thank you. Good morning, everyone of you have 2 questions as well if we could the first of Michelle is for you just on the overall SKU optimization strategy and inventories being down in <unk>.
Plus percentage at the end of the quarter I'm wondering if you can just connect those 2 where are you at on the rationalization of Skus.
Sure Scott Thanks for the question.
We've been on this mission for the last year really across the across the company and we've shared that driving clarity brand clarity choice clarity of the strategy for womens. We've also made great progress for men's I would say by the fall, we will be near complete of that process, but even as the.
We sit here today, we have made great clarity and our choice counts as an example to your question on Skus. Our choice counts are down significantly across the board and that is enabling the kind of the inventory reduction, but I think really more importantly staff the record level of 10 year highs of inventory turn.
That we're seeing so we've done the team has done a ton of work to make sure that as it relates to brands. Each brand has real purpose in terms of what it stands for and we have eliminated redundancies across the company. We've eliminated 25 brand 25 significant brands.
And then we are driving that choice count down that has allowed US just further to the densify. If you think about the store environment and the fixtures began to buy and create a more inviting more clear shopping experience of the customers, giving us credit for that.
That's very helpful. And my next question is just on your loyalty members. If you could talk a little bit about what you've seen over the course of the last several months as people have become more comfortable getting back into the store experience in the store environment are you starting to see some loyalty member engagement.
Increases or even new loyalty members that you're converting from incremental traffic. Thank you.
Yes, Steph I'll take that 1 too yes.
Yes, we are we have been very pleased to continue to see our new customer acquisition efforts pay off.
So we continue to bring in a lot of new customers in the first quarter and thats been exciting to see really across both channel both as people shop more in stores and then complemented with customer acquisition digitally.
And as you know last fall, we updated and evolved our Kohl's rewards program to make it more simple more engaging everything folks are on per cash and we have seen increase for redemption increased enrollment we're leveraging all the data we get on these customers to drive greater focus on personalization in them.
Barry please on that too.
Joe was speaking earlier about pricing and promotion, we think of that targeted offer is continuing to build that customer file and really tailor and target customers in a way that gives us great efficiencies on.
Content product content on offered under the key part of our marketing strategy and loyalty is a big unlock for that so net net very happy with where we are.
Thank you.
Thanks for that.
Your next question comes from the line of Lorraine Hutchinson with Bank of America.
Thanks. Good morning, just following up on Paul's question around the margin guidance. It seems like you've built in some level of conservatism into the gross margin line based on inventory levels building of delivery expenses can you maybe talk about areas of opportunity for upside to that target.
And then also if there are any other SG&A bucket too.
<unk> the floor, but anything else, we should be thinking about.
To factor into our model for the rest of the year.
Sure Lorraine. So obviously, we will continue to manage our inventories tightly we won't continue to be down to the degree of you saw in first quarter and I think most retailers will have a build back. So some of the full price selling that came really just from if you will scarcity, especially on the home goods area will maybe we think ease as we move into the back half.
Of the year, we do feel really great with the apparel selling and then our ongoing proprietary brand specifically in women's are incredibly strong as well. So those are really all upside as we look across the landscape will continue to use our pricing and promotional strategy as Michelle mentioned, the much more targeted which we see as a huge benefit for us.
Both top line because it drives consumer behavior, but obviously that volume to the bottom line for our profit perspective, but with that being said I think just the uncertainty that remains is why we took a prudent approach. Our goal is clearly to continue to beat the guidance that we have out there and really drive it through our strategies, we do see the consumer backdrop in our favor at the.
The point, but obviously given the year that we just navigating we thought it was definitely prudent to be aware of the uncertainty that prevail and the supply chain is 1 of those as we do try to build back into inventory. We've taken a lot of actions to offset that disruption, but we don't think that thats going to ease in the short run so that's definitely something.
We're keeping our eye on as well so what I would say is we're going to continue to look to enhance the margin, but until we feel better coming out of Q1 of 1 quarter of small quarter of the year for retail as you are aware, we thought it would be best to take a conservative approach for the guidance as we look forward. So SG&A wise I would say, we feel very good with how SG&A.
It came in the marketing efforts that you started seeing take hold last year continued with our 8 of US down I think of about 100 points of what you would've seen in 2019 that will continue in the year that team has done a great job really optimizing that and.
Youre going to see is much more in the social area is in fact, we use a lot of social media to launch our new athleisure brand black and that worked incredibly well for us with that launch exceeding our expectations and then technology spend we just made a really step change in how we approach technology with our new leader that was down about 15 per.
In the quarter and Youre going to continue to see us optimizing me down in technology. The wage rate pressure is something we'll continue to watch we've taken that on a market by market basis, our productivity in the stores has continued to increase the help us mitigate that but that's definitely a risk for watching and depending on how the wage rate play.
Our <unk> as well as the labor market, obviously, there's definitely been some.
Concerns on labor, mainly for us of the distribution centers for addressing that appropriately as well to make sure that we're attracting the high amount of talent that we've consistently had and those areas. So the <unk>.
<unk> will launch in fall of lot of those costs happen in Q2, which is why we wanted to call. It out and obviously now we're pairing that with our refresh program, which has some expenses with the as well, but when we unveil safari you'll see in those 200 doors are really new refresh call and we're really excited about that just given the momentum we see in our stores over the last several months.
Thank you.
Your next question comes from the line of Mark of Swagger with Baird.
Good morning, Thanks for taking my question.
First just following up on the customer topic I'm, hoping you could give us a sense of whats your active customer count looks like kind of.
Currently at the end of Q1 relative to the end of Q1.19, and along those lines maybe talk about your progress with reactivation of birds eye umbrella of your ability to target customers that.
You may have had to shift to other retailers amid the pandemic of early last year.
Sure Mark Michelle here I'll take the question.
So as we've shared in the past 2019, serving 65 million customers and clearly last year.
The challenging year to measure that and we're still we're still emerging from that so and again quarter by quarter. It's a true.
The number to answer, but what I would say is.
At.
Our customer acquisition efforts in stores, we are seeing those customers come back in stores. So that's been a big contributor to as we talked about earlier stores delivering a lot of the momentum and upside as we looked across the quarter. So so we're feeling we're feeling good.
Being reactivated customers, we're seeing new customers.
And that is what has given us the optimism to update our guidance I can talk about but as Joe the a great deal of just elaborating on we see we see the upside we see the momentum, but we're also taking a thoughtful and prudent approach to run our business in a way that we continue to manage it tightly just like we've demonstrated the last few quarters.
I think mark.
New customers are incredibly important in sephora and the huge opportunity for us in the fall to attract the younger customers. We mentioned, we had very little overlap with their customers. So we feel great with the new customer acquisition. We've had the reactivation of the store customer starts coming back and then obviously of them into the fall of having that large opportunity with sephora.
Thank you Jill.
The high end of the updated EBIT margin guidance is now in line the fiscal 19 levels, which is just the nice to see you go.
100 basis point range versus what Youre thinking of.
A few months ago. So just to put the question is.
Are you feeling more confident in the <unk>.
For the 8% for for 2023 could we potentially see upside for that based on what you've learned so far this year just any comment there would be great.
Clearly I feel great with the 7% operating margin in Q1, but it's 1 quarter. So we definitely.
It makes us feel good of our strategies are working and we feel confident of achieving our 2023, 78% all of that we stated I just think of the very early to suggest that we would make any changes to that at this point of 1 quarter. Obviously as you know is great, but it doesn't make that trend. So obviously, we'll continue to manage that mark, but we used to think of it.
The hallmark of confidence of our sites are working we will hit the goal.
Great. Thanks for all of the detail.
Okay.
Yeah.
Your next question comes from the line of Paul of the juice with Citigroup.
Thanks, It's Tracy Kogan filling in for Paul Michelle I was wondering if maybe you could talk about some of the.
Your plans to improve conversion from some of the partnerships you have especially so for I know you mentioned you you're probably moving some brands closer to the floor, but maybe if you could just talk about some of the other.
Do you have for improving conversion.
Sure Tracy well 2 to speak specifically to your question answer for couldn't be more excited about that launch. We're now literally just a few months away. As you know this has been a massive effort across the company 200 doors opening this fall 850 by 2023, and then all things digital.
All of fire up on August 1 so everything all systems go we're feeling very confident about the launch and we also feel very confident about the halo effect that we'll see.
We think about not only new customers, but also with existing customers.
And so we are going to do a lot to enable that flow through our marketing efforts and our merchandising effort. So we talk about the 200 doors, specifically well for us to take a step back.
Given our strategies are.
Key strategies around the plan, we announced last October being the leading destination for the active and casual lifestyle. We are re flowing all stores in the company to reflect the strategy and as we expand and amplify categories in the active in casual downsize of.
Other categories that we're seeing less traction on these days like mens dress and fine jewelry.
We still have those categories, but just in a different way when moving across the across the board that we flow and that merchandising coupled with inventory management reduced choice counts faster turn overall is gonna be of great customer experience not limited to the 200 doors, but in the 200 doors, which will quickly grow to 850.
The tremendous opportunity lots of new customers of younger customers coming in so all of the brands first of all of the blend moves we're making.
Really the right to the newer fresher more modernized kohl's so as you know.
Calvin Klein, Tommy Hilfiger coming in even at the Bauer of the outdoor lifestyle.
Et cetera.
Benefit of all doors, but I think as it relates to the new customer Sephora in particular and then we are as we go into those stores and then put that the beautiful shop at the front of the store we will even do further evolutions of the store experience to create for example, a Calvin Klein we're doing it.
<unk> sized shop in shop, right adjacent to the the sephora shops to give an even more elevated experience, we're doing things with the Levi's brand 1 of our core brands. We've had for some time, but are going to do some unique merchandising there.
And I'd say the list goes on and there's just a ton of opportunity at the huge focus for the team and I think it's a unique.
The opportunity. So we've got of sees it and take advantage of the the great opportunity the the support of brand, bringing them and welcoming all of these great new customers.
Thanks, Good luck guys.
Thank you.
Your next question comes from the line of Oliver Chen with Cowen.
Hi, Bob the progress of this before and your plans. So I'm quite exciting what are your thoughts about how that may interplay with the school and holiday and as we think about our models.
Sales per square foot.
Before and what kind of lifts.
See there's a lot of new and younger customers give us little overlap.
Would also love your take on the supply chain challenges and what's in your control and what's not in your control and which categories for them.
Most impacted thanks.
Sure Oliver while I can kick it off and then I'll have Joe chime in here, especially on the supply chain issues.
Well I would say to your to your question on as we think about our all of our strategies in the into back to school and holiday I think we've never been as well positioned I think the timing of sephora related to the online launch and that affects everybody our entire digital business, which as you know is growing is strong.
Our omni channel capabilities for example, in the 200 of doors will obviously enable things like buy online pick up in store and curbside, but we will enable buy online ship to store to all of our stores I think that's a good example of the power of our on the platform. So of the customer wants to order sephora and pick it up in their local store, but they're not yet of the board of store.
We will any of the last 3 shipping et cetera. So so we're super excited I think we answered for excited about what the what our omni channel platform will do for the 4 at Kohls, but yeah. I think the timing is absolutely perfect in back to school will sort of hit the tail end of the launch the floor, but a lot of our new <unk>.
Initiatives are right in there on you know as we will be.
As we'll be launching them back to school will be kicking off and then right into the holiday I think we're set up for a great holiday you know all of the trends we're seeing around customers.
Living a more active and casual lifestyle, we don't see that letting up we saw strength in at the last holiday and we expect that to continue whether that's purchases for yourself or gifting all of the casual brands that will be fully launched by that point, Calvin and Tommy and Eddie Bauer further expansion of the.
When done which has been terrific for us to date and list goes on and can take all of that which is going to the across the system. Now a lot of these brands are in 304 hundred 500 doors, if you will but everything online for sure and then and then the Halo effect of the Sephora launch and these other brands of naturally expect of.
A lot of these other brands will bring in new customers as well.
And as we were speaking earlier, while we continue to stay very close to our business and make sure. We're managing with discipline I can assure you that we will chase all of the demand that's out there Jill will speak in a moment about supply chain disruption and what we're seeing but are our partners.
Our brand partners and suppliers has been really terrific.
As we navigate the and lean into opportunities I mean, we use home of the good example, with Tom it's been great for the industry of great for us and we've been able to chase it and maintain strong positive comps for multiple quarters now I'll hand, it over to Joe to speak to further on the supply chain question.
Sure. Thanks, Michele so.
Obviously, everyone is right now I'm looking at the supply chain challenges, we continue to monitor the headwinds and I think we've navigated that very well I'll kind of talk about 5 things. We have done 1 is we've prioritized RVO is can we make sure that we're bringing in those critical for <unk> for adds and events that will activate them if the need it.
We've added more drivers to increase our pickups from the court, we are increasing the frequency of store deliveries to make sure that we're flowing the good timely and making sure. We're hitting that was an extraordinary we've added carriers as well to reduce true.
The time and then we are moving.
A lot of containers I'm, sorry, the transit times from Asia are prioritizing specifically our women's businesses that are made for proprietary brand business. So ensuring that we continue to prioritize I, especially as that of a transition for us and we expect that all of their strategies, although the unfolding now and we're seeing that momentum build.
We're set for fall. So we continue to watch it but we continue to deploy a lot of strategies at this point to ensure that we're bringing in the ratios of getting the guys in a timely manner.
Lastly, outdoor you called out in your comments I mean, you've been I'm.
The solid destination for the from the past I guess, what's different and how big of this is the percentage of mix.
Might you manage weather sensitivity is a can be a risk factor.
Sure. So you know outdoor is also a category that we see a lot of growth for the industry. How people are living there wearing outdoor or not just to go hiking and serious outdoor adventures, but they're there they're wearing it along the streets kind of like what we've seen with active and I think for us and if we were.
Historically, our outdoor brand portfolio has largely centered on Columbia, Great brand has grown we love, Colombia, but could be of true destination. It's also about having the suite of brands not unlike what we've done with assets. So if you look at active with now we have strength in our incredible portfolio of <unk>.
Nike and under armour and Adidas, our own private brands of the recent introduction of flex brands in the Atmore leisure category of the champion where true destination and the customer can come in and they see incredible amazing brands.
And they can choose for whatever suits their their tastes of no need similarly, as we look ahead to outdoor you know it's both yes, we will sell outerwear.
Often you think twin of the big opportunity for call of the small business today, but we're working hard as we look to the years ahead to build that business out, but now you've got Colombia, and then done and Eddie Bauer and the like so we just see tremendous opportunity and the more we can expand the portfolio very thoughtfully I mean.
There are a lot of brands to make room for going after the active outdoor athleisure category. So that we can low double down on on this business of new brands. So I think by rounding out the portfolio. It makes us more of an authority to be of destination for this category of the last thing I would say is we do see all of the.
For all of these lifestyle needs active athleisure outdoor casual working together and even the the active brands of <unk>.
Going after the outdoor opportunity to all of us so more to come we look forward to sharing more and and our customers seeing what we're doing the business.
Thank you very much.
Thank you for all of them.
Thank you. Your next question comes from the line of Chuck Grom with Gordon Haskett.
Yeah.
Yes.
Chuck of your line is open.
Chuck Your line is open.
Your next question comes from the line of Jenna Giannelli with Goldman Sachs <unk> with Goldman Sachs.
Your next question comes from the line of Jenna Giannelli with Goldman Sachs.
Joe Your line is open.
Yeah.
Okay. It sounds like we don't have Jenna. So I think this is probably a good time to close it out thanks, everyone for listening on the call today, we look forward to speaking with you in August.
Ladies and gentlemen that does conclude today's conference. We thank you for participating you may now disconnect.
Yeah.
Yeah.
Yeah.
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