Kohl's Lags on Q3 Earnings, Lowers View

Zacks

Retailer Kohl’s Corporation (KSS) posted third-quarter fiscal 2013 earnings of 81 cents per share, lagging the Zacks Consensus Estimate of 86 cents by 5.81%. Earnings were below management’s expected range of 83 cents to 92 cents per share and also fell 11.0% from the prior-year quarter earnings of 91 cents. Earnings dipped due to lower sales and gross margins during the quarter.

Sales and Margins

Net sales dipped 1.0% from the year-ago level to $4.444 billion, due to lower comparable sales. Sales also missed the Zacks Consensus Estimate of $4.556 billion. Comps declined 1.6% during the quarter compared to a 1.1% increase in the prior-year period. The company was able to manage its inventory and merchandise content during the quarter.

Gross margin shrank 60 basis points (bps) to 37.5% due to lower revenues. Operating margin declined 120 bps to 8.2% from the year-ago quarter due to higher operating expenses. Depreciation expenses were higher in the quarter.

Store Update

Kohl’s opened three stores in the reported quarter. The company ended the quarter with 1,158 stores in 49 states including the nine stores that it opened in the first quarter. Kohl’s remodeled 30 stores in fiscal 2013.

Other Financial Details

As of Nov 2, 2013, Kohl's’ cash and cash equivalents were $598 million compared with $592 million in the previous quarter. Long-term debt increased to $2.792 billion during the period compared with $2.492 billion in the previous quarter.

During the quarter, the board at Kohl's declared a quarterly cash dividend of 35 cents per share, which will be paid on Dec 24, 2013 to shareholders of record as of Dec 11, 2013.

Guidance

Kohl’s has issued guidance for the fourth quarter of fiscal 2013. The company expects earnings in the range of $1.59 to $1.74 per share, sales to decline in the range of 2%–4% and comparable store sales to dip in the range of 0%–2%.

For fiscal 2013, Kohl’s has lowered its earnings guidance from $4.08–$4.23 per share to $4.15–$4.45 per share following soft results in the third quarter.

Kohl’s now has a Zacks Rank #3 (Hold). Other retail and wholesale stocks that warrant a look include hhgregg Inc (HGG), Best Buy Inc (BBY) and Conns Inc. (CONN). While hhgregg holds a Zacks Rank #1 (Strong Buy), Best Buy and Conns Inc. carry a Zacks Rank #2 (Buy).

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