- In today’s CEO Daily: Phil Wahba on the turnaround at Kohl’s.
- The big story: Nvidia beats earnings expectations, but stock falls.
- The markets: Mixed.
- Plus: All the news and watercooler chat from Fortune.
Good morning. I’ve covered retail for more than 15 years now, so if there’s one thing I’m familiar with, it’s a once-beloved retailer trying for the umpteenth time to mount a turnaround. It can be done—see Walmart in the last decade and Target in the second half of the 2010s. But as I’ve been seeing at Kohl’s (No. 261 on the Fortune 500)—it’s extremely difficult.
Investors were practically giddy yesterday when Kohl’s surfaced some glimmers of good news in its second-quarter earnings call. The stock is up 21% over the last few days. Interim CEO Michael Bender, a Kohl’s director who took the reins in May after the previous CEO’s surprise ouster, laid out his plans to get “back to growth.” But there are still many reasons to be cautious—and three big reasons these types of turnarounds are so challenging.
Cost-cutting takes a toll: The cost cuts and tight inventory, which protect margins, is giving Kohl’s financial breathing room to take another stab at turning itself around. But some of the moves Kohl’s has made to protect profits can in fact hurt sales. Lower inventory helps margins by reducing how much merchandise gets discounted if it’s not catching on with shoppers but it can also mean lost sales and visually unappealing empty shelves. Leaner staffing means lower costs but can also mean messier stores, and long waits to check out that can frustrate a shopper and foment low morale among employees.
The competition is fierce: Turnarounds don’t happen in a vacuum. When one player is struggling, rivals capitalize on that weakness to grab market share. Last year, Kohl’s saw sales in every category it sells, except for the Sephora shops, fall by a double-digit percentage. Kohl’s has lost millions of customers and its business is 20% smaller than it was in 2019, while T.J. Maxx, Walmart and Target are much larger now.
Management is walking on a financial tightrope: Earlier this year, Kohl’s cut its dividend 75% to conserve money and this week, Bloomberg reported Kohl’s was asking for more time to pay some vendors—so it’s an open question on how much Kohl’s can spend on its turnaround. “It’s not that management lacks the will to improve or the desire for change. The challenge lies in an inability to execute at an operational level,” says GlobalData managing director Neil Saunders.
There were some reasons for optimism in Kohl’s report on Wednesday. Comparable sales were unchanged in July, and as CEO Bender struck many of the right notes that investors and employees alike want to hear. And while investors were no doubt relieved to see any good news at all, they must keep in mind that like all turnarounds, the saga at Kohl’s remains a show-me story.—Phil Wahba
Contact CEO Daily via Diane Brady at diane.brady@fortune.com
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Fortune unveils new vodcast
Fortune 500: Titans and Disruptors of Industry, a new vodcast hosted by Fortune’s Editor-in-Chief Alyson Shontell, debuted this morning. Watch the first episode with Accenture CEO Julie Sweet here.
Nvidia beats earnings expectations, but stock falls
Nvidia was able to surpass Wall Street’s quarterly earnings expectations on Wednesday with $46.74 billion in quarterly revenue, a 56% increase year-over-year. With no China sales revenue for the company’s H20 chips, however, the stock fell following the earnings call.
Nvidia’s data center revenue missed expectations
The company’s data center division is a proxy for its AI services. Revenue from that unit missed expectations—one of the reasons the stock fell after the call. Some investors are now worrying that demand for AI chips may be about to plateau, according to the WSJ. The NYT has a different take: overall demand for the company’s products remains “robust,” especially as the company reported zero revenues from China and its topline revenues came in above expectations.
Another Tesla sales disaster in Europe
New Tesla registrations declined 40% year-on-year for July, according to the European Automobile Manufacturers Association. Sales for China’s BYD vehicles rose 225% in a market where overall EV sales are rising.
JFK Jr. restricts Covid vaccine access
Patients will now have to see a doctor first rather than go to a pharmacist. The CDC upgraded the “stratus” variant of the coronavirus from “low” to “moderate” after levels detected in wastewater increased in the West and South.
Anthropic settles author lawsuit
Anthropic settled a lawsuit this week brought by authors accusing the AI company of using millions of books to train its models. The settlement amount was not disclosed, but experts say it could set the stage for similar lawsuits in the future.
Denmark thinks something is rotten in its state
Danish Foreign Minister Lars Løkke Rasmussen has summoned the local U.S. Embassy chief for talks after three Americans were detected running a covert influence campaign to support President Trump’s desire to take over Greenland, a Danish territory. The Americans were not named. Danish media reported they made lists of Greenlanders who were friendly to the U.S. and lists of locals opposed to Trump. The White House told Denmark to “calm down.”
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S&P 500 futures were flat this morning premarket, after the index closed up 0.24% yesterday, another record high. STOXX Europe 600 was flat in early trading. The U.K.’s FTSE 100 declined 0.3% in early trading. Japan’s Nikkei 225 was up 0.73%. China’s CSI 300 was up 1.77%. The South Korea KOSPI was up 0.29%. India’s Nifty 50 was down 0.72% before the end of the session. Bitcoin rose to $113.2K.
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