Q3 2022 Kohls Corp Earnings Call
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Excuse me, ladies and gentlemen, this is the operator today's conference call is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
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Yeah.
Good morning, My name is Dennis and I will be your conference operator today.
At this time I would like to welcome everyone to Kohl's Corporation third quarter 2022 earnings conference call all.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one the ador telephone keypad to withdraw your question Press Star one again.
I would now like to turn the conference over to Mark Rupe Senior Vice President Investor Relations. Please go ahead.
Thank you certain statements made on this call, including projected financial results and the company's future initiatives are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Kohl's intends forward looking terminology such as believes expects may will should anticipates plans or.
Or similar expressions to identify forward looking statements.
Such statements are subject to certain risks and uncertainties, which could cause <unk> actual results to differ materially from those projected in such forward looking statements.
Such risks and uncertainties include but are not limited to those that are described in item one a in Kohl's. Most recent annual report on Form 10-K.
And item <unk> of part two of the company's quarterly report on Form 10-Q for the first quarter of fiscal 2022.
And as maybe supplemented from time to time in Kohl's other filings with the SEC.
All of which are expressly incorporated herein by reference.
Forward looking statements relate to the date initially made.
And pulled undertakes no obligation to update them.
In addition, during this call we will make reference to non-GAAP financial measures.
Information necessary to reconcile these non-GAAP financial measures can be found in the investor presentation filed as an exhibit to our form 8-K filed with the SEC and is available on the company's Investor Relations website.
Please note that this call will be recorded however, replays of this call will not be updated.
So if you're listening to a replay of this call. It is possible that the information discussed is no longer current.
<unk> undertakes no obligation to update such information.
Today's call will be abbreviated as compared to past earnings calls.
We are planning the call to last approximately 40 minutes.
With me. This morning are Peter Bonaparte, our independent chair of the board.
And Jill Timm, our Chief Financial Officer.
I will now turn the call over to Peter.
Thank you Mark and thank you for joining us this morning.
I'm going to provide some brief introductory remarks, and then I'll turn it over to Jill to review our third quarter results. We will then take some Q&A.
As we shared last week, Michelle Gass decided to step down as CEO has become the successor CEO at Levis valued brand partner of ours.
On behalf of the Board management, and all of our associates I want to thank Michele for her contribution to Coles during the past nine years.
Our efforts to strategically transform coals through brand introductions and partnerships like Sephora and their focus on building, an inclusive and collaborative culture will benefit the company for years to come.
Michelle is an outstanding leader and we look forward to continuing to work closely with her in the future.
We have plans in place to facilitate a smooth transition.
The board appointed Tom Kingsbury of interim CEO . Many of you know Tom from his leadership in fixed at Burlington.
He is highly regarded in an exceptional operator with a keen focus on inventory management.
A new town from his early days with filings and I personally have always had a great deal of respect for his professionalism retail acumen and integrity.
<unk> is no stranger to Coles, he calls Milwaukee home.
He has been on the board since 2021 and has been intimately involved in working with Michelle and the team.
He is the perfect fit to lead the company. During this interim period and we greatly appreciate his willingness to serve in this capacity, we expect them to hit the ground running.
Given the recent volatility in our business and consumer behavior, the significant macroeconomic headwinds along with the unexpected CEO transition we.
We will not be giving guidance for the fourth quarter and are withdrawing our prior outlook for the year.
We also want to make sure that the company has the flexibility to take the actions necessary in the fourth quarter to best position the business for 2023.
Then you have shrunk conviction in our strategies and as our intend to resume providing guidance on our Q4 call in late February for the new fiscal year 2023.
Now, let me spend a few minutes on our next steps.
The board last week formed a committee to oversee the search for a new CEO Michael Bender, our current share of the Nam meeting an ESG committee will be leading our efforts with help from Kristine de <unk>.
Margaret Jenkins as well as Tom Ni.
Coles is a great company with bright prospects and this is an attractive ROE on an opportunity in the retail industry. We are excited to engage with candidates.
Let me share with you some of the key characteristics. We are looking for in a new CEO .
Kohl's has always been known for brands value and convenience. So it's important that we landed Canada has great brand building experience understands our go to market value proposition and as deep omnichannel expertise.
In addition, we are looking for a leader that can build great teams and drive stellar results, while furthering the innovative spirit, a conclusive and collaborative culture.
We don't have a timeline for you on how long it will take but we know that the process is underway and that Tom has agreed to remain interim CEO until a permanent successor is named.
This company has been through a lot over the last couple of years.
Want to thank our shareholders for the time, you invest in engaging with us as well. Thank you for your continued support during this transition period.
We're committed to finding the next great CEO to successfully position Kohl's to drive sales grow earnings and create shareholder value.
This board is also committed to supporting Tom the management team and the entire associate base. During this interim period.
I'll now turn over the call to Jim to discuss our third quarter results.
Thank you Peter and good morning, everyone.
Before I get started.
To thank Michele for her leadership and partnership over the past decade.
Let me now review, our third quarter results and business performance.
As we shared last week sales were down approximately 7%.
Our operating margin was four 7%.
And diluted EPS was <unk> 82.
Our performance during the third quarter was relatively in line with our expectations.
As the organization continued to manage the business effectively in a challenging macroeconomic environment.
Persistently high inflation continues to dampen consumer spending and our business given our exposure to discretionary categories like apparel and home goods, which are facing disproportionate pressure.
During the quarter, we saw our middle income customers continued to purchase fewer items per trip.
Right down to our value oriented private brands.
From a channel perspective store sales outperformed digital and improve sequentially in Q3 due in part to having more sephora shops open and our investment in labor to enhance execution across the store.
Digital sales were down 8% to last year.
But still up nearly 20% to the third quarter of 2019.
Digital accounted for 29% of sales.
From a product perspective sales of our private brands increased slightly to last year.
With strong performance in our top private brands, including Sonoma Croft, <unk> Barrow jumping beans, nine west <unk> and Lauren Conrad.
Accessories with our best performing line of business up mid teens percent driven.
Driven by strong performance from Sephora beauty sales.
We continue to see mid to high single digit percent sales lift in stores with sephora relative to the balance of the chain.
This was partially offset by lower sales of jewelry driven by in store displacement.
Our core women's business outperformed the company average and excluding juniors was flat to last year.
We maintained momentum in dresses experienced weakness in juniors and Internet, which we are working to improve.
As it relates to some of our other categories.
<unk> underperformed in Q3 versus the company driven by continued softness in active footwear.
Our outdoor business continues to outperform with growth from Eddie Bauer and lands end.
In footwear, we are pleased with the growth achieved in our dress casual business, especially in birds eye.
And lastly mines performed in line with home and children underperformed the company average.
Now, let me turn to the rest of the income statement.
Q3, gross margin was 37, 3% down 263 basis points from last year.
The decline was driven by an ongoing increase in freight costs, which pressured margin by 150 basis points.
Product cost inflation, which was a 50 basis point headwind as well as elevated shrink levels.
Our margin continued to benefit from our pricing and promotional optimization strategies.
SG&A expenses decreased three 3% to $1 3 billion benefiting primarily from the lack of holiday based retention incentives this year.
And lapping last year's Sephora rollout expenses.
And through disciplined expense management, we were able to offset some of the continued wage headwinds.
Depreciation expense of $202 million was $8 million lower than last year due to reduced technology capital spend.
Interest expense of $81 million.
It was $15 million higher than last year due to support related lease amendments and increased borrowings.
Net income for the quarter was $97 million.
And as previously reported earnings per diluted share was <unk> 82.
Turning to the balance sheet and cash flow.
Our inventory at quarter end increased 34% to last year.
With our Sephora at calls beauty investments contributing five percentage points of the increase.
When compared to third quarter of 2019 inventory was flat.
During Q3, we set the pack and hold merchandise on the sales floor.
And in transit normalized.
We feel good about the progress we are making to reduce inventory and continue to expect further improvement by year end remaining agile and responsive to the demand environment.
Operating cash flow was $121 million in the third quarter.
Capital expenditures for the quarter were $185 million, driven mainly by Sephora and new stores.
We opened five new stores in 2022.
Four of which occurred in early November and relocated another four stores.
During the quarter, we paid $57 million or <unk> 50 per share in dividends to shareholders.
In addition, as previously disclosed on November 9th the Board declared another quarterly cash dividend of <unk> 50 per share payable to shareholders on December 21.
Subsequent to the end of the quarter, we completed our $500 million accelerated share repurchase program.
In total we received $17 9 million shares which resulted in an average price of approximately $28 per share.
From an accounting perspective, we recognized $11 8 million shares in Q3 and.
We will recognize the remaining $6 1 million shares in Q4.
Now, let me provide an update on our capital structure and capital allocation priorities.
Starting first with our revolving credit facility.
As expected we increased our usage of the revolver during the third quarter driven by our seasonal inventory build ahead of holiday and to execute the $500 million accelerated share repurchase program.
At the end of the third quarter, our outstanding revolver balance was $668 million.
Importantly, we expect to fully repay our revolver borrowings in early December as we move through the key parts of the holiday selling season.
We have consistently communicated that our long term objective is to maintain our investment grade rating supported by prudent balance sheet management and a leverage target of two five times.
Philosophy and objectives have not changed on this front.
<unk> forward, our capital allocation actions will prioritize the dividend.
Road by returning our balance sheet to its historical strength.
We plan to pay down our two bond maturities totaling $275 million in 2023.
We are not planning on repurchasing any additional shares until our balance sheet has strengthened on a path towards our leverage target of two five times.
The recently completed $500 million ASR as a pull forward from 2023.
And we recently completed our robots process, where we engaged with dozens of industry participants to assess potential asset monetization opportunities for our owned real estate.
This included robust engagements with large fully integrated real estate service firms.
Specialty real estate advisory and brokerage firms.
Large institutional real estate investors and specialty real estate investment and private equity firms.
Given the market volatility and current rate environment. We have concluded that it's best to stay the course and continue with our existing process of regularly evaluating our real estate to maximize asset value.
Drive long term profitability and optimize the portfolio with a focus on maintaining balance sheet health and financial flexibility.
We will continue to take advantage of favorable opportunities as they arise, but not engaged and transformative sales leaseback transaction at this time.
Let me share a few comments on our forward outlook.
For holiday, knowing how important value is to customers. This year, we are amplifying our value messaging through our holiday brand campaign as well as by featuring our private brands more prominently in our marketing and leaning into our iconic kohl's cash and Kohl's rewards programs across key promotional events.
Our key product focus areas include expanded for our gifting assortment.
Increased newness and greater exclusivity in toys, Tac and Pat.
Active and cozy apparel and special occasion, outfitting such as holiday dresses.
Gifting is an important theme in our messaging and we look forward to serving our customers. Once again this holiday season, both online and in store, including our now over 600 stores with Sephora at Kohl's shops.
As it relates to our financial outlook.
As Peter stated in his opening remarks, we remain committed to and confident in our strategy. However, we are not providing fourth quarter sales and earnings guidance at this time.
It is the prudent thing to do given the recent unpredictable trends in our business.
A significant macroeconomic headwinds.
Along with the unexpected CEO transition.
We also want to make sure that we have the flexibility to take the actions necessary to best position the business for 2023.
Let me share a few qualitative comments on recent trends and select financial commentary.
In recent weeks the environment has become more unpredictable to forecast.
Following fairly stable trends in August and September sales decelerated in late October with softness continuing into November as compared to last year.
We believe this is primarily a function of a later start to holiday shopping as compared to 2021 when customers were concerned about scarcity of inventory.
Given our expectation that the challenging environment will continue in the short term, we're taking actions across multiple fronts to ensure that we are best positioned.
We are planning inventory commitments conservatively executing expense savings opportunities and reducing capital expenditures.
We will do this while continuing to invest our key future growth initiatives.
Our partnership with the far remains extremely strong and we are both incredibly focused on building support calls to $2 billion in sales.
In 2023, we'll open 250 additional support calls shops, bringing the total to 850 as well as make progress on developing a smaller footprint concept for our remaining 300 stores.
In closing I want to extend a special thank you to all of our associates.
I admire your commitment to putting our customers first each and every day.
We value our dedication to calls.
The holiday season is a special time for so many reasons, both personally and for our business.
I am excited to see more and more of our customers experience the elevated store environment with sephora and benefit from our value driven holiday promotional strategies.
With that Peter and I are happy to take your questions at this time.
At this time I would like to remind everyone in order to ask a question simply press Star then the number one on your telephone keypad. Once again. Please press star one if you would like to ask a question.
And your first question is from the line of Mark Oswald I'll Schrager with Baird. Please go ahead.
Good morning. Thank you for taking my question first Peter with respect to the CEO search could you expand on the key attributes of the board is looking for are you looking for an individual who can execute on the current strategy is the company's outlined or perhaps looking to shake things up a bit and finally is there a scenario where Tom continued in the role for more than an inch.
Term basis.
Yeah, Thanks, Mark and good morning.
As regard to your first question just to elaborate the board and the current management team and are fully aligned that the <unk>.
<unk> that we've embarked upon is the right. One so we're not looking for a CEO who is coming in to change the strategy that we've embarked on what we are looking for is a very strong operator as I said.
Who can drive sales somebody can drive earnings per share and somebody who understands the basic tenants behind the kohl's value proposition.
And the brand strategy so.
What we are confident that this is amongst the top REIT jobs in retail and that the search firm is going to lead to us to somebody who can run this business for a long time.
As it relates to Tom's ongoing involvement Thomas committed to us that he will be interim CEO until we find one so.
While there is no ending date that it's very clear that his assignment at this point is interim it couldnt be asking for a better leader at this time given his background.
Yes.
Support of Kohl's, along the way.
Thank you for that and Jill I know you don't like to provide a lot of monthly detail, but given the decision to withdraw the guide any more color you can give us on the volatility in late October and early November .
Be helpful. Just as we try to get a sense of what the run rate is kind of exiting the quarter and into early Q4, and then on gross margin you called out some of the.
Puts and takes.
Q3.
And costs and shrink just any thoughts on what those factors look like in Q4 relative to Q3.
Based on what you see today. Thank you.
Sorry, good morning, Marc I think for sale you know we mentioned in the call. We saw stable sales in August and September . It was that late part of October that we really saw softness. So you can read that into it actually underperformed the quarter. We saw softness continue in November what I would say is it's moderately better. So we are seeing some improvement like we mentioned we are look.
You can see is that shopper reverting back to more of that pre pandemic 2019 shopping period to last year, we did see an acceleration due to the scarcity of inventory, but given the volatility and really the uncertainty in the macro environment. We just don't have a lot of visibility into that which led us to partially withdrawn or why we wanted to withdraw the.
Guidance today in terms of margin, we had talked a lot about freight being a headwind all year. We knew we would start lapping that as a headwind in Q4, so that will actually moderate but what does come back in Q4. As you saw we called out is that cost inflation, so where freight will moderate cost inflation actually elevate.
We'll see a similar pressure there and then shrinkage is really ongoing I think you've heard about that more macro. So we've continued to see shrink as a headwind for us we're doing a lot of things to try to manage that with of course, the first and foremost priority of us keeping our associates and our customers safe as we go through from that perspective. So.
That's kind of the color I can give you as we move into the fourth quarter, but I would say just overall its the uncertainty and the lack of visibility we have not that we don't have a conviction and confidence in the strategy that we're employing.
Great. Thanks again.
Yes.
Your next question is from the line of Bob a durable with Guggenheim. Please go ahead.
Hi.
Yes, I just wanted to sort of follow up on Mark's questions, but I don't know if this is Peter Jill or both but can you just talk about the decision to actually withdraw the guidance versus maybe a wider range.
Any framework that you can give us around Q4, but even into 'twenty three as you think about how.
How do you want to position the business 23, I think that would be pretty helpful. And then I just have a follow up.
Yeah, Bob maybe I'll start and toss it over to Joe first of all good morning.
Nice to talk to you.
So as you know I've been doing this a long time as have many members of our board as Jill and I would say that the visibility for the fourth quarter.
It has been as difficult as any period I can remember so what you have as we've said is on the one hand, you had last year situation, where nobody had any inventory.
As a result, all customers were inclined to buy early.
And so you have these big numbers early in the quarter. So people had a lot of conviction of course by the end of the quarter people that inventory problems.
Issues, and we had that as well now you flip over everybody has a lot of inventory.
<unk>, obviously, we are anticipating a highly promotional calendar and then we saw this pronounced slowdown in October going into November was that consumer behavior was that weather was that the elections I don't think anybody really knows it's probably a combination of all those three factors.
You then combine that in our minds with obviously unexpected CEO transition and our judgment call, which frankly is a $51 40 high call. Our judgment was that it was very important to give Tom and the team the latitude in the fourth quarter to execute on our basic strategy, which is to drive value in sales during a very promotional environment.
You've heard from other competitors I think it's consistent with what everybody is saying out there I think everybody believes that Christmas will come but I don't think anybody out there today knows for sure exactly what's going to happen.
If you have anything to add to that.
No I would echo the sentiment I think it's really about the unpredictability and the volatility and the trends that we've seen over the last several weeks, it's not that we're not confident in the strategy as we enter into the holiday season, we know it's going to be very focused on value. It's a core tenant for calls. So this affords us the opportunity to make sure that we can compete go after the market share we're set up really well.
We have 600 sephora shops, we have a lot of newness across the store, including smart home Pat leaning into successful areas like outdoor and dress. So we have confidence in the strategy I think it's much more about the uncertainty and unpredictability of the macro environment that Peter had mentioned.
Got it.
I have a follow up question.
So I think one of the brands that you called out was just Lauren Conrad brand.
One of the products that seems to be creating a lot of chatter.
The womens LC, Lauren Conrad mid rise leggings and I was just wondering if.
That's enough to really sort of carry the brand if you have any.
Any comments around how that is performing in stock or.
And that'll be tier and the fourth quarter. Thanks.
Lauren we did call out I think we have called out has been a successful brand for us and is really resonating with our customer I personally in the Lauren Conrad shopper as everyone knows and who doesn't love a great <unk>. So I think it's really indicative of the success of our leggings are doing well, but really just of the brand in general and we talked about women. The core women's business was flat on the <unk>.
So when you take out juniors, which we've talked about we're working through some of the issues. We have there. So we feel really happy with how women's is performing and overall Laurence just a great brand, we're happy with the partnership and I'm really happy that you actually know about Lauren Conrad lagging so apparently our social marketing has broad reaching.
Thank you.
Yeah.
Your next question is from the line of Gaby Carbone with Deutsche Bank. Please go ahead.
Hi, Good morning, Thanks for taking my question. So on inventory last quarter, you mentioned like.
UBS, maybe high teens at the end of the year, which kind of brings you back in line with 2019 levels. You know curious if that's kind of how you're still thinking about it I understand you aren't providing guidance and then just on the promotional front just curious of your activity and kind of how youre thinking about the holiday, maybe it's still going to be better than what you saw in 2019.
Thank you.
Sure in terms of inventory I think inventory is actually right, where we expect it to be I think we talked in Q2, we knew we weren't point, we're going to make improvement, but it wouldn't be a large amount of improvement because we wanted to protect holiday. We wanted to make sure. We are flowing those fresh receipts, which we did so a lot of that benefit would come to us after we slowed the holiday receipts.
We're still very focused on inventory I know just talking with Tom It's a key focus of his as well. So you will see that we are positioning ourselves with the flexibility to make sure that we enter 2023 clean.
Ready to be successful in that year. So I would say, we're going to continue to focus on bringing that down I'm happy with the fact that we're flat to 19 from an inventory perspective, even with the investments we're making into beauty. So the progress is right, where we expected it to be.
In terms of the holiday period, I mean holiday is always unique and we know there's a lot of business still in front of us for holiday, we know it's going to be promotional.
Peter started this call you talked about the core values of calls and in value convenience and brand and so we're going to really lean into that we have the iconic kohl's cash we have our Kohl's rewards program, we're going to use our called credit value offering as well to really drive that business through the holiday season, and make sure that we're competitive and I think that's another.
Portion of what the actions. We took this is really going to give us the flexibility to compete and make sure we're getting that market share.
Great. Thank you so much.
Yeah.
Your next question comes from the line of Oliver Chen with Cowen. Please go ahead.
Hi, Peter and Joe Nice to talk with you.
Nice job on Lauren Conrad as well.
Looking ahead in this uncertain environment, rich, which categories do you think might have more promotional intensity.
Would love your general views on what's happening with the consumer with these cross currents, because theres still with low unemployment and some savings but it's.
Consumers, just becoming much more price conscious.
Yes, I can definitely start on this one we'll start with the consumer because you've talked about it we mentioned on the call in Q2 and now again, we're seeing it as our lower income customers and higher income customers are growing we're really seeing that squeeze and who is our core customer which is the middle income and that continues.
Into this quarter as well as we watched that customer moves. So we know value is important we also thought Oliver and how they voted in the quarter they've migrated both in Q2 and Q3 to our proprietary brands.
They've outperformed national brands for the last two quarters, which is really the first time that we've seen that in a long time. So we know value is definitely going to win this holiday season, and we need to lean into that we talked a lot about newness, but even in our sephora shops, we know that we have an opportunity to elevate and gifting. So we'll be doing that but we're going to have gifts that even start at 35.
So really leaning into the fact that we're bringing in a little bit lower income customer and how can we make sure that we're fulfilling their needs across the store in terms of the promotional intensity I mean, I definitely think it's going to be widespread I don't know if theres any particular category, that's going to have more promotional intensity than others I just want you to know that.
That is a core fundamental of recalls is and we're prepared to compete this holiday.
Thanks Happy holidays.
You as well.
Okay.
Your next question is from the line of Omar Saad with Evercore partners. Please go ahead.
Okay.
Hi, Thanks for taking my question.
Joe could you do a deeper dive on the inventory.
Alan.
How you feel about the positioning, especially kind of COVID-19 winning categories versus kind of recovery in occasion, driven categories do you feel like you're well positioned from inventory.
Endpoint as consumers return to some other.
Pre pandemic shopping behaviors and categories Theyre shopping in.
Or are you comfortable where you're at.
Sure I think from an inventory perspective last year as we called out we were low on inventory. So we really needed to build back and I think the two big places that we've built back in first and foremost with women's.
We go back over time, we took a transition in women's we did a lot of exiting out of underperforming brands and they were trying to bring back in that unit and it was tough to do last year given the supply chain disruption. So we were definitely under inventory I think we feel well positioned from an inventory perspective for womens were seeing that resonate with the customer dresses.
Typically has been a new category for US right, we haven't always participate in it but we know that dresses and dress casual or more important do we fund it as that inventory and it's definitely been performing for us you'll see even into the holiday period, we're going to have more dresses are really around that holiday occasion dressing as well so feel good in wealth.
So from that perspective, and home, we're actually moving back into some of our electronics Smart home Tvs things that we haven't necessarily participated in but we know our big Black Friday deal drivers for people to come to the store. So I think the newness that they're bringing in and electronics is great and then we're also expanding our outdoor business and.
So youre going to see things like <unk> and cooler than and seating. So that's really going to build off of and about other strength that we've had over the past quarter.
Then I think last is active as a place that you've seen softness by on the apparel side were still trending well, so youre going to see that we move that to the front of the store with Sephora youre going to see that we're going to have a great.
Our array of products, but really going to see more on our flex and tech gear because of the value orientation of those products, which are going to be much more important. During this holiday season. So I think as I look across inventory I feel like the progress we've made with white, where we expect it to be we feel good with the content that we have as we head into holiday and then we will have the flexibility to make any moves.
We need to to make sure we enter 2023 from a strong position.
Got it. Thank you and then maybe any quick thoughts on what's going on in the active footwear side of the business.
Any levers you can pull to get.
Get that going again.
Yes, I think right now it's about the supply chain and just getting the newness and when we do get newness itself. While we just don't have enough of it from my understanding we should start seeing it flow.
Happened more in Q1, so we expect spring of 'twenty, three we will start pushing that back into a positive zone, but I would say what I'm excited about in footwear Omar is the dress side of the business is really coming through we actually ran positive comps there and we have a great boot business happening as well, which is a good statement as we move into the holiday period, So I think active footwear.
A little bit, but really excited about the dress side of the business.
Okay.
Thanks have a great holiday thanks.
Thanks, you as well.
Your next question is from the line of Ashley <unk> with Jefferies. Please go ahead.
Hi, This is Blake on for Ashley and good morning.
Good to ask two questions one on.
One on the promotions and just the impact to gross margin. So I think you mentioned is a headwind in Q3, and then product cost inflation.
And then a little bit more on the gross margin impact from promotions and then maybe any directional read how we should be thinking about Q4.
For promotion.
I think as you know we have had a strategy around our pricing and promotion and really optimizing that so we actually called that out as a benefit to our margin in the third quarter really helping offset some of these headwinds as well as.
Helping us when we had to clear through some inventory offset that what I'd actually say is we're optimizing those promotions to be much more effective as well. So much more targeted offers much more personalized offers eliminating a lot of stack ability, which was confusing for the customer because they had to do math, so really making sure that the offers that we're putting in are meaningful to the customer to drive there.
Behavior, so that strategy is still being employed pricing being really important during this holiday season to make sure that we're being competitive and then underlying where is that extra benefit we can get from kohl's cash specifically and that of course all offers as we move into holiday. It's always promotional it's something that Kohl's is drive them.
For the year that we know how to be promotional and we know how to lean in and out and I think the agility that we have today is a new muscle that you haven't seen in years past. So we're gonna be able to make those moves much more quickly depending on what we're seeing from a consumer perspective. So we're able to promote to be competitive promote to see where the product is moving and promote much more targeted manner.
To move consumer behavior. So I feel that this actually plays to a strength of calls and we're set up to take advantage of that in the fourth quarter.
That's great to hear thank you and then also on.
Before I was just wondering you had some of those stores now for about a year plus so just wondering if you could comment a little more broadly on how those stores are comping.
And then how do you how do you expect that customer to hold up under inflation.
Versus your chain average thank you.
Sure what I would say is one we're still seeing great performance from Sephora, they're up mid to high single digits are outperforming the balance of the chain. So we felt good the stores, obviously just comp for one month of the quarter, but it is positive. So we feel great that they are comping I think that we're seeing in beauty beauty sales I think that we're seeing.
Across is that beauty people need it they see this as a need we've always said this is a traffic driver for us it's why they come back and even during inflationary.
Times, they need to replenish their lipstick or makeup of cosmetics and skincare. So we feel like this is definitely a thing that can continue to drive our business. During the holiday period like I had mentioned on the call. We know last year gifting with something that outperform frosty youre going to see a much more expanded gifting assortment this year.
We're going to have some very good value price points to really take into accountability of the uncertainty in the inflationary environment that we're in and we're going to do this all with a much more elevated marketing support and partnership with Sephora and I think rebuilt rates with the strategy as it unfold we feel great.
First 200 stores start hitting their comp year, and we feel really well set up for the holiday period.
Thank you so much.
Okay.
Your next question is from the line of Chuck Grom with Gordon Haskett. Please go ahead.
Hey, good morning, Thanks, very much good to see the progress on inventory Joe last quarter, you guys provided a really nice slide on talking about that across different buckets core and trends that support our pack and hold just wondering if you could.
Maybe frame out.
Those buckets force this go round.
Yeah, So made it a lot easier honest Chuck honestly, the pack and hold on the floor. So it is literally.
Not a difference to last year, obviously, we didn't buy into that inventory. So that went away in third quarter and then we mentioned on the call are in transit is really just kind of came back in line I think you saw across the supply chain disruption. We had written in a lot of extra time that wasn't needed because the ports are pretty clear there's capacity in that in the shipping lane.
So we were able to really normalize that so we didn't have to call. It out. The one thing we did call out it was about 500 basis points for beauty. So as we now have 600 stores open we made that investment into inventory. So that was the only reconciling items. So really trying to simplify what we're looking at but even with beauty flat to 2019. So we do feel good with the progress but more.
Progress to come as we mentioned going through Q4.
Alright, I think that was our last question. So I want to thank you everyone for listening on the call today and wish you a wonderful holiday season.
Thank you all for joining Kohl's Corporation third quarter 2022 earnings Conference call. This does conclude today's call you may now disconnect.
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