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Bear of the Day: Kohl's Corporation (KSS)

Benjamin Rains

Shares of Kohl's Corporation (KSS) have tumbled in 2019 as the department store industry’s inability to inspire confidence on Wall Street continues. Kohl’s could benefit from what is expected to be a strong holiday shopping season. Nonetheless, investors should probably avoid KSS stock until it is able to show signs of a comeback.

Holiday Shopping and Retail

The story is one we hear all too often: Amazon (AMZN) and e-commerce are killing traditional retail. There is some truth to this sentiment. Yet many retailers are flourishing in the digital age, and new companies seem to pop up every day in a world where many shop directly from their iPhones on platforms such as Instagram (FB) Pinterest (PINS).

Meanwhile, giants like Walmart (WMT) and Target (TGT) have proven they can thrive in the e-commerce age.

The success of others makes Macy’s (M), J.C. Penney (JCP), Nordstrom (JWN), and Kohl's lack of growth even harder for investors and Wall Street to swallow. These department stores have tried to adapt and bolster their digital footprint, but the results haven’t materialized—at least not over a sustained period.

On the bright side, the National Retail Federation said last Thursday that it expects U.S. holiday shopping sales to climb between 3.8% and 4.2% to reach roughly $730 billion. This would compare favorably to the 3.7% average over the last five years and top 2018’s disappointing 2.1%.

The NRF’s projection comes as U.S. unemployment rests at 50-year lows. Overall, the NRF report pointed to positivity. “Nonetheless, there has clearly been a slowdown brought on by considerable uncertainty around issues including trade, interest rates, global risk factors and political rhetoric,” NRF CEO Matthew Shay said in a statement. 

 

 

 

 

Outlook & Earnings Trends

Before we take a look at what to expect from Kohl’s it is worth noting that KSS stock has performed far better than Macy’s over the last five years and its industry’s average. Still, shares of Kohl’s have fallen 33% over the last 12 months and its quarterly sales have fallen by an average of roughly 3% over the trailing three periods.

Our current Zacks Consensus Estimates call for Kohl’s Q3 revenues to pop 0.3% to reach $4.64 billion, with the fourth quarter expected to pop 0.97%. These would both crush Q2’s 3.1% and Q1’s 2.9% year-over-year declines. Despite the projected positivity, KSS full-year fiscal 2019 sales are projected to slip 1.9%.

At the bottom end of the income statement, the firm’s adjusted quarterly earnings are projected to sink 12.2% to hit $0.86 per share, with Q4 expected to slip 0.45%. The department store’s full-year EPS figure is expected to dip 6.6%. Plus, Kohl’s has seen its earnings estimate revisions trend heavily in the wrong direction.

 

 


 

 

Bottom Line

KSS is a Zacks Rank #5 (Strong Sell) at the moment that is set to report its Q3 fiscal 2019 financial results on November 19. The firm could certainly see a boost during the holiday shopping season, especially when we consider how much room the stock has to run. Plus, Kohl’s currently pays an annualized dividend of $2.68 per share, with a selloff-induced yield of 5.68%.

Despite some bright spots, Kohl’s is part of the Retail – Regional Department Stores industry that currently ranks in the bottom 1% of our 255 industries. Therefore, investors still interested in the broader Retail space might instead want to consider #2 (Buy)-ranked Lululemon (LULU), Crocs (CROX), and V.F. Corporation (VFC).

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Walmart Inc. (WMT) : Free Stock Analysis Report
 
V.F. Corporation (VFC) : Free Stock Analysis Report
 
Target Corporation (TGT) : Free Stock Analysis Report
 
Pinterest, Inc. (PINS) : Free Stock Analysis Report
 
Macy's, Inc. (M) : Free Stock Analysis Report
 
lululemon athletica inc. (LULU) : Free Stock Analysis Report
 
Kohl's Corporation (KSS) : Free Stock Analysis Report
 
Nordstrom, Inc. (JWN) : Free Stock Analysis Report
 
J. C. Penney Company, Inc. (JCP) : Free Stock Analysis Report
 
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