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Kohl’s (KSS) Posts Dismal Q3 Earnings, Updates Guidance


Kohl’s Corporation KSS posted third-quarter fiscal 2017 results, wherein adjusted earnings per share of 70 cents missed the Zacks Consensus Estimate of 72 cents. Earnings slumped 12.5% from the prior-year quarter, due to lower gross margin stemming from higher cost of sales and a moderate rise in selling, general and administrative (SG&A) expenses.

The disappointing bottom-line performance came after five successive quarters of positive earnings surprises. Consequently, shares of the company declined approximately 8% during the pre-market trading hours on Nov 9. We note that, Kohl’s shares have returned 3.3% in the last three months as against the industry’s decline of 10.9%.

Kohl's Corporation Price, Consensus and EPS Surprise

Kohl's Corporation Price, Consensus and EPS Surprise | Kohl's Corporation Quote

Sales and Margins

Net sales were $4,332 million, which beat the Zacks Consensus Estimate of $4,296 million and improved 0.1% from the prior-year quarter. The top line mainly gained from increased comps and improved performance during the back-to-school season. The positives were offset by soft sales trends owing to unfavorable weather conditions during the middle of the third quarter.

We note that the company’s store traffic continued to rise since the first half of 2017. Encouragingly, the 0.1% rise in comps during the quarter under review compared favorably with the year-ago decline of 1.7%. This signifies that the company’s strategic initiative — Greatness Agenda — has started yielding results. The initiative, which commenced in first-quarter 2014, was designed to drive transactions per store and sales.

Gross margin declined 30 basis points to 36.8% in the reported quarter. Selling, general and administrative expenses increased 1.4% to $1,095 million in the quarter.

Other Financial Details

As of Oct 28, Kohl’s had $736 million of cash and cash equivalents, $2,796 million of long-term debt and $5,029 million of shareholders’ equity. Cash flow from operations amounted to $869 million.

On Nov 8, Kohl's board of directors declared a quarterly cash dividend of 55 cents per share, which will be paid on Dec 20, to shareholders of record as of Dec 6.

Kohl’s ended the quarter with 1,156 stores, 12 FILA Outlet stores and four Off/Aisle clearance centers in 49 states.

Updated Guidance

Kohl’s expects adjusted earnings for fiscal 2017 in the range of $3.60-$3.80 per share, compared with the previous range of $3.50-$3.80. We note that despite the weak bottom-line results, this Zacks Rank #3 (Hold) company raised the low end of the fiscal 2017 earnings view on a gradual improvement in comps.

Stocks to Consider

Investors may consider other stocks from the same sector such as Burlington Stores, Inc BURL, Home Depot Inc HD and Ross Stores Inc ROST. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Burlington Storesdelivered an average positive earnings surprise of 17.7% in the trailing four quarters. It has a long-term earnings growth rate of 17.4%.

Home Depot delivered an average positive earnings surprise of 3.7% in the last four quarters. It has a long-term earnings growth rate of 13.5%.

Ross Stores delivered an average positive earnings surprise of 6.3% in the trailing four quarters. It has a long-term earnings growth rate of 10%.

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