As part of our new strategy, we announced in December a game-changing partnership with Sephora. Sephora will become Kohl’s exclusive beauty partner with at least 850 Sephora at Kohl’s locations by 2023, beginning with 200 locations and a digital launch in 2021. We expect this partnership to drive substantial incremental customer traffic, attract new, younger customers and boost sales across other categories.
In the coming months and years, you will see a whole new Kohl’s, especially as our Sephora partnership rolls out.
| 3. | You have talked publicly about your momentum. Could you tell us more about this, and why are you confident that you will achieve your objectives? |
Michelle: We have clear momentum and are highly confident that we will achieve our objectives given the traction we are already seeing. We reported strong third quarter and fourth quarter earnings that exceeded expectations amidst an ongoing global pandemic. Investors are taking notice: Kohl’s stock price has appreciated more than 200% since we announced our new strategy in October, outperforming the S&P 500 by more than 190%1.
Jill: The appreciation in our stock price reflects substantial improvements to our operations. We are expanding gross margin through an end-to-end supply chain transformation, price and promotion optimization, sourcing cost reductions and disciplined inventory management. For example, we achieved five- and ten-year inventory turn highs in the past two quarters.
We have also acted aggressively to reduce SG&A expenses. From 2017 to 2019, our cost savings initiatives exceeded $250 million, allowing us to mitigate cost pressures and reinvest for the future. In 2020, our restructuring efforts generated expense savings of more than $100 million on an annualized basis. Looking ahead, we are focused on lowering our SG&A expenses by further improving efficiency across store labor, marketing and technology, and we are already seeing strong progress. SG&A expense in the second half of 2020 declined 8%, including a 19% reduction in marketing spend.
Based on the strength of our performance, our Board recently announced the reinstatement of the Company’s quarterly dividend and our share repurchase program, both of which had been temporarily suspended at the outset of the COVID-19 pandemic.
| 4. | How is your new strategy different from past efforts to grow the business? |
Michelle: Our new strategy reflects a fundamental evolution of our business. While we are building on the investments we’ve made over the last few years, we are taking the business in a new direction and to new levels. We are tapping into high-growth consumer trends, like the active lifestyle, and making these a much bigger part of our future. Active, for example, will grow to more than 30 percent of our business in the coming years.
We are currently driving the biggest transformation of our brand portfolio in our history, exiting over 25 brands, to offer a more tightly curated assortment of private and national brands. We are also leveraging the ongoing industry disruption and our strong omnichannel platform to attract iconic new national brands like Cole Haan and Calvin Klein, with more to come.
Our biggest differentiator is our new partnership with Sephora, which will be a significant unlock in driving traffic and attracting millions of new customers to Kohl’s. We are also taking the opportunity to refresh and reflow our stores with much greater clarity, creating more inviting shopping experiences and offering an entirely new level of excitement and discovery for our customers.
| 1 | Bloomberg; as of April 6, 2021 |
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