Kohl's 1Q Earnings Beat, Outlook Up

Zacks

Kohl’s Corporation (KSS) posted fiscal 2013-first quarter earnings of 66 cents, beating the Zacks Consensus Estimate of 58 cents per share by 13.8%. Earnings were ahead of management’s expectation of 55 cents–63 cents per share and climbed 5.0% from the prior-year quarter earnings of 63 cents per share.

Although Kohl’s suffered soft sales in the earlier months, conditions improved in April due to warm weather. Sales were below management’s expectation, but bottom line rose on the back of gross margin improvement and tight expense control.

Sales and Margins

Net sales slipped 1.0% from the year-ago level to $4.20 billion, missing the Zacks Consensus Estimate of $4.26 billion. Kohl’s’ comparable store sales declined 1.9% from the prior-year quarter compared to a rise of 0.2% in the year-ago period. Low inventory turnover along with improper pricing and ineffective marketing strategies resulted in soft sales during the quarter.

Gross margin, expanded 50 basis points to 36.4% due to lower cost of merchandise. Operating margin was 7.5%, slightly down from 7.6% in the year ago quarter. Lower selling, general and administrative expenses were offset by higher depreciation expenses.

Store Update

Kohl’s ended the quarter with 1,155 stores in 49 states, compared with 1,134 stores in the year-ago period. The company opened nine new stores during the first quarter of 2013. It has plans to open three new stores and remodel 30 more in the fall.

Other Financial Details

As of May 4, 2013, Kohl's held $518 million of current assets compared to $537 million in the previous quarter. Long term debt remained at $2.5 billion during the period.

Guidance

Kohl’s issued guidance for the second quarter of 2013. The company expects earnings in the range of $1.00 to $1.08 per share, sales to increase in the range of 1%–3% and comparable store sales to increase in the range of 0%–2% in the quarter. Kohl’s expects to repurchase shares worth $250.0 million in the same period.

Kohl’s now has a Zacks Rank #3 (Hold). Other retail and wholesale stocks that warrant a look include Harris Teeter Supermarkets Inc (HTSI), Costco Wholesale Corporation (COST) and Dillard’s Inc. (DDS). All of them carry a Zacks Rank #2 (Buy)

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