Kohl's Beats on Q2 Earnings Estimates, Revenue Misses

Zacks

Retailer Kohl’s Corporation (KSS) posted second-quarter fiscal 2014 earnings of $1.13 per share, beating the Zacks Consensus Estimate of $1.07 by 5.6% and prior-year quarter earnings by 9%. Although revenue declined year over year, earnings improved on the back of lower outstanding shares.

Sales and Margins

Net sales decreased 1.1% from the year-ago level to $4.24 billion due to a decline in comparable sales. Sales also missed the Zacks Consensus Estimate of $4.3 billion by 1.4%. Comps declined 1.3% during the quarter which compared unfavorably with a gain of 0.9% in the prior-year quarter.

However, this situation was better compared to the prior quarter when comps declined 3.1% year over year. The improvement came on the back of improved weather conditions in the second quarter and positive comps during the month of July.

Soft sales in the first quarter due to unfavorable weather which disrupted usual shopping trends resulted in higher inventory levels during the quarter. The companies had to give high discounts in order to clear the piling stocks during the quarter. This resulted in a high promotional environment and exerted downward pressure on the margins of the company.

Gross margin shrank 10 basis points (bps) to 39.0% due to lower revenue.Operating margins inflated 10 bps due to lower selling, general and administrative expenses.

Store Update

As of August 2, 2014, Kohl’s operated 1,160 stores in 49 states compared to 1,155 stores in the prior-year period. Kohl’s opened four stores, relocated one and closed two during the quarter.

Other Financial Details

As of August 2, 2014, Kohl’s held $746 million of cash and cash equivalents compared to $717 million in the prior quarter. Kohl’s ended the quarter with a long term debt of $2.8 billion- same level as that of prior quarter.

Guidance

The company’s earnings release did not provide any update on its previously issued financial gyuidance. The company’s previously issued outlook included earnings in the range of $4.05 to $4.45 per share, sales growth in the range of 0.5–2.5% and comparable store sales growth in the range of 0–2%.

Kohl’s carries a Zacks Rank #3 (Hold). Other stocks in the sector worth considering include J.C. Penny Company Inc. (JCP), The Buckle Inc. (BKE) and L Brands Inc. (LB) all carrying Zacks Rank #2 (Buy).

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Read the Full Research Report on BKE


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