Past margin performance
In 4Q17, Kohl’s (KSS) reported a gross profit of $2.3 billion, up 10.7% on a YoY (year-over-year) basis, driven by higher revenue. Despite rises in its shipping expenses, Kohl’s gross margin also expanded 40 basis points to 33.8%.
Tight inventory management (down 7% from 2016) led to fewer promotional markdowns.
Kohl’s SG&A (selling, general, and administrative) expenses rose 7.3% to $1.5 billion in 4Q17 mainly due to the additional week in 2017. The company’s SG&A expenses as a percentage of its sales improved 40 basis points to 21.5%. Its operating margin was 8.4% compared to the 7.6% margin it reported in 4Q16.
For 2017, the company reported a gross margin of 36.2%, up 15 basis points from 2016. The increase in its margin was driven by prudent inventory management, which led to fewer markdowns. However, higher shipping costs related to its digital business remained a drag.
For 2018, Kohl’s management expects its gross margin to expand 5–10 basis points on a YoY basis, and its SG&A expenses are expected to rise 1%–2%. Its depreciation expenses are likely to be $960 million, while its interest expenses are expected to be $280 million in 2018.
For 1Q18, the company’s SG&A expenses are likely to rise in the mid-single digits due to higher costs related to cloud migration and investments in omnichannel efforts.