Kohl’s looks for ways to “enhance shareholder value”: 18 stores to close in 2016

The struggling US retailer reported Thursday its figures for its fiscal fourth quarter. The retailer also issued its fiscal 2016 earnings guidance, which came at the lower end of the company’s estimates. Aimed to keep the stock’s value, Kohl’s will see 18 stores close in the first half of 2016.

“Kohl’s continues to explore ways to enhance shareholder value through the optimisation of its existing store portfolio. The closures are expected to generate annual SG&A savings of approximately 45 million dollars and annual depreciation savings of approximately 10 million dollars,” announced CEO Kevin Mansell Thursday.

The company currently expects to incur approximately 150 – 170 million dollars in charges as a result of these planned closures and the organisational realignment at the firm’s corporate offices which occurred earlier this month. In this regard, Kohl’s “estimates that approximately 55 – 65 million dollars of the charge will be recorded in the first quarter of 2016, with the remainder recorded in the second quarter.”

On a conference call with investors after its fiscal fourth-quarter earnings report Thursday, Mansell acknowledged these planned store closures represent what is likely the first time in the company's 52-year history as a department store that it is closing multiple stores at a time. CFO Wes McDonald recalled that Kohl's has only shuttered about five locations since he joined in 2003.

In the meantime, the retailer will pilot a smaller, 35,000-square-foot Kohl's in seven U.S. markets, an additional two off-price stores and enter the outlet space with 12 Fila stores.

Combined, these real estate experiments indicate Kohl's, whose revenues have stalled at roughly 19 billion dollars over the past four years, is willing to explore new ways to boost its sales and profitability, highlights analysts polled by CNBC.

Kohl’s lowers its earnings outlook for FY16

On a related note, Kohl’s now expects earnings to be between the range of 4.05 to 4.25 dollars a share. This bracket not only comes at the lower end of previous estimates, but also below analysts' projections of 4.24 dollars a share.

Jim Cramer, co-manager of the Action Alerts PLUS portfolio said highlighted that, from a stock performance point of view, "Kohl's raised the dividend and talked about smaller stores... that's very, very important."

In the latest quarter, sales at stores open for at least a year increased 0.4 percent year-over-year. "This strength, however, was substantially offset by softness in early November and in January when demand for cold-weather goods was especially low," CEO Kevin Mansell said.

Still, some analysts remain sceptical the retailer will be able to deliver on its financial targets, as it combats elevated inventories and an overall shift in spending away from department stores.

"Kohl's enters 2016 with high inventory in what has been a highly promotional and competitive retail sector," Citi analyst Paul Lejuez told investors. "We expect pressure on sales and margins to continue."

"As painful as it is to close stores, we applaud Kohl's for taking action that is necessary in order to compete more effectively in a more complex and challenging retail environment," Carter Harrison, an analyst at the Conlumino retail research firm, told investors. "It is especially encouraging that such a move is only one part of a wider package of measures, many of which involve more positive steps to reinvigorate the company."