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Diving certificate:

• Kohl’s third-quarter net sales fell 8.7% year-over-year to $3.5 billion, while comps fell 9.3%, financial filings showed Tuesday. On Monday, the department store announced it had named Michael CEO Ashley Buchanan as CEO, succeeding Tom Kingsbury, effective Jan. 15.

• Gross margin increased 20 basis points to 39.1% in the third quarter. Inventory fell 3%. Operating income fell 2.7%, or 120 basis points, to $98 million, while net income fell 62.7% to $22 million.

• The retailer lowered its forecast for the second time this year. After originally estimating a net sales decline of 2% to 4% and an August estimate of 4% to 6%, Kohl’s now expects full-year net sales to decline 7% to 8%. Comps are forecast to fall 6% to 7%, compared to the August estimate of a 3% to 5% decline.

Insight into the dive:

Customers are hearing from Kohl’s as the retailer works to lure them back into its stores after a series of missteps helped drive some away.

Transactions fell about 3% in the third quarter after rising 2% in the second quarter, directly resulting in a quarter-over-quarter decline, Kingsbury told analysts Tuesday morning. August was particularly weak, although back-to-school sales, particularly for children’s clothing, were generally weak.

“We are focused heavily on increasing traffic in response to weaker trends in the third quarter,” he said. “We are increasing our touchpoints with our most engaged customers through more targeted offers and direct mail.”

Kohl’s is also making a U-turn in some areas. For example, after eliminating its fine jewelry displays to make room for its Sephora partnership, the department store is returning to 200 stores, along with expanded in-aisle placement of Bridge jewelry in all stores for the holidays. Additionally, in its eagerness to reduce inventory that had spiraled out of control in 2022, the retailer reduced its small offering, a move Kingsbury called “a short-sighted decision that we are determined to resolve.”

Finally, the company’s move late last year to emphasize brand names over private label appears to have backfired. Over the past 18 months, with inventory under tight control, investments in Sephora, brands, home accessories and gifts and impulse purchases squeezed out revenue from Kohl’s private clothing brands, Kingsbury said. Private clothing brand inventory in transit is now up 40% and is “hitting the floor just in time for the holidays,” he said.

“Given our investments in market brands and our key growth categories, we simply did not have enough private label inventory,” he also said. “However, I want to be clear: we continue to believe that our market brand strategy and investments in key growth categories are the right long-term strategic moves. We simply need to create a better balance between these initiatives and managing the core business.”

That job — and Kohl’s turnaround more broadly — will soon fall to Buchanan, and it will be a difficult task, according to Emarketer analyst Rachel Wolff. With consumers still focused on value for money, Kohl’s faces stiff competition from low-cost players, on-line and major retailers, Wolff said in emailed comments Tuesday.

“Kohl’s poor quarter and downgraded guidance are a worrying sign for the retailer’s holiday outlook,” Wolff said. “While the company is trying to revitalize its business by reshaping its inventory mix with a focus on categories like beauty and gifts and partnering with bigger names. “Just as Sephora and Amazon are trying to attract customers, those efforts are failing in a highly competitive retail environment.”

Kingsbury on Tuesday described a withdrawal of some turnaround tactics, but Fitch Ratings senior director David Silverman said analysts there are looking for a change in strategy to boost sales, particularly in women’s clothing, which is “key to longer-term success.” for Kohl’s”.

“We will be looking for strategic changes from new CEO Ashley Buchanan to assess the company’s potential operational trajectory from here,” Silverman said in emailed comments.