Kohl's blows past quarterly earnings expectations as it targets future partnerships to keep store traffic growing

• Kohl's shares jumped as the retailer's Q2 sales and revenue beat analyst expectations.
• Kohl's said growth was fueled by increasing sales, which increased by 30% from last year.
• Kohl's will launch new partnerships this year, similar to opening Sephora stores within Kohl's.

Kohl's beat second-quarter sales and revenue expectations and raised its 2021 outlook as strong sales numbers drove the company's growth.

Digital sales increased 35% from same period in 2019, driven by the retailer's men's, home, footwear, and active sections.

The retailer also hinted that it would roll out new brand partnerships in the coming months, in the same vein as its recent deal to open Sephora stores within 850 Kohl's outlets in the next two years.

"We continue to be encouraged by the traffic we're seeing and customers returning to stores," Kohl's CEO Michelle Gass said during a Thursday earnings call. "We are on the eve of launching several transformational partnerships that will drive sustainable growth for years to come."

Kohl's revenue hit $4.45 billion, a 30% increase from the same quarter last year, and sales were up 30% compared to last year. Kohl's earnings per share climbed to $2.48 compared to $2.22 a year ago, in part reflecting a $255 million share repurchasing program this quarter.

Both earnings and revenue beat Wall Street's expectations of $1.22 a share and $3.99 billion, respectively.

Gass said Kohl's stock of national brands like Nike, Levi's, and Sonoma would boost the department chain during the back-to-school season and indicated that the school shopping season is most important for its leading children's business.

Some analysts are encouraged by Kohl's deal with Sephora, where the beauty giant will open locations within Kohl's and sell Sephora personal care and makeup products on the Kohl's website.

The store-within-a-store will replace the retailer's existing beauty products and will eschew the beauty counters typically found at department stores. Seventy Sephora locations will open in August, and waves of openings will continue into the fall.

"We just launched our game-changing partnership with Sephora that will transform Kohl's into a leading beauty destination," Gass said. "We had a very successful launch of the support at Kohl's digital experience."

The retailer said the company plans to fuel growth in 2021 by bolstering sales in activewear and beauty, phasing out underperforming brands, and expanding into decor, kid's bedroom, and storage products.

The company expects to expand sales in active and outdoor to 30% of sales, and the share of active and outdoor is already up 4% from 2019.

"Our performance in the second quarter marked another important step in further establishing Kohl's as the leading destination for the active and casual lifestyle," Gass said.

During the pandemic, Kohl's took less of a hit in monthly foot traffic compared to 2019 levels than other department store chains like Macy's. Retail stocks have performed well in 2021, with the SPDR S&P Retail ETF up around 50% since the start of the year.

"We are really pleased with our second-quarter results and the progress we are making with our strategies. Our efforts are gaining traction and we enter the back half of the year with key transformational partnerships that will drive sustainable growth for years to come," Kohl's CFO Jill Timm said.