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Kohl’s Raises View Despite Unimpressive Comps, Stock Down 5%

Zacks

Kohl’s Corporation KSS came out with holiday sales numbers, which dampened investors’ spirits. The comparable sales (comps) growth rate decelerated from the year-ago period. In fact, management’s raised earnings guidance for fiscal 2018 was also not enough to appease investors. Markedly, Kohl’s stock declined nearly 4.8% in yesterday’s trading session. We note that, the company’s shares have declined 7.5% in the past three months, against the industry’s fall of 4%.

A Closer Look at Yesterday’s Debacle

Notably, Kohl’s comparable sales (comps) growth for the combined November and December 2018 period came in at 1.2%, down from 6.9% witnessed in 2017 holiday season. Well, it wasn’t just Kohl’s whose holiday sales failed to impress. Other retailers such as Macy’s M and L Brands LB also reported unimpressive numbers for the season and saw shares decline yesterday.

Weak sales outcome from these biggies have made matters gloomy in the retail sector. In fact, consumers’ shifting preferences and stiff competition are headwinds plaguing this space.



Any Hopes with Raised Guidance & Other Efforts?

Kohl’s management is impressed with the little but positive growth momentum witnessed during the holiday season. This was mainly backed by attractive product offerings and effective marketing strategies across stores and online platforms. More specifically, the company witnessed transaction rises as well as double-digit growth in the digital platform during the period.

These upsides led the company to raise fiscal 2018 earnings view yesterday. It now expects earnings in the range of $5.50-$5.55 compared with the previous projection of $5.35-$5.55.

That said, we expect the company’s raised view combined with persistent focus on augmenting store traffic to revive investors’ confidence in the stock. In fact, we note that Kohl’s is focusing on the strategic initiative, Greatness Agenda, which is designed to drive transactions per store and sales. Additionally, the company boasts a strong brand portfolio and regularly undertakes innovation to keep assortments fresh. It has also been expanding e-commerce fulfillment centers to meet the requirements of rising digital traffic, especially from mobile sales. Moreover, Kohl’s has been strengthening ties with retail giant Amazon AMZN to increase consumer footfall.

Apart from these, the company boasts an efficient inventory management program. In this regard, its standard to small initiative is lowering inventory and boosting profits. Further, the company’s localization efforts have enabled it to bring the appropriate product in the apt store at the right time.

We expect that such well-chalked efforts will aid this Zacks Rank #3 (Hold) company in augmenting revenues in the forthcoming periods and help it meet targets effectively.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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