Kohl's Corp. executives blamed the U.S. government's decision to raise tariffs on $200 billion of Chinese goods to 25% from 10% among other factors for slashing its fiscal 2019 outlook.
The department store operator cut its adjusted diluted EPS for fiscal year 2019 to the range of $5.15 and $5.45 after reporting results for the first quarter that missed analyst expectations.
The company's updated guidance takes into account its first-quarter results, higher costs due to increased tariffs and the benefit expected from the nationwide launch of the Amazon returns program.
In an earnings call, CEO Michelle Gass said the company is planning the year more conservatively due to increased tariffs and a soft start in the year.
Gass said the situation is very "fluid" right now and the company is working with vendors to devise a strong plan.
Kohl's CFO Bruce Besanko said that the company's apparel and footwear businesses will feel no effect from the tariffs.
"We're obviously disappointed to see the increase in tariffs from 10% to 25%. Right now, these tariffs primarily affect our China-sourced merchandise in our Home and Accessories business. Of course, apparel and footwear at this point are not impacted."
Kohl's also expects its gross margin rate to be down 20 to 30 basis points for the year. The retailer plans to be more aggressive in pricing and promotions to drive top-line sales in the competitive environment.
"It's important to note that our merchandise margin continues to be at all-time highs. However, given the tariffs and our actions to drive the top line, it's becoming more difficult to offset the cost of shipping headwind," said Besanko.