Kohl's (KSS) Up 10.5% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Kohl's (KSS). Shares have added about 10.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Kohl's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Kohl's Q1 Earnings Beat Estimates, Revenues Drop Y/Y
Kohl's Corporation posted solid first-quarter fiscal 2023 results as both the top and bottom lines came ahead of the Zacks Consensus Estimate and the latter improved year over year.
Kohl’s saw an expansion in margins and a 6% decline in inventory. The store business witnessed productivity gains, with Sephora at Kohl’s continuing the sales momentum. Total beauty sales grew 150% in the first quarter.
Kohl's posted earnings of 13 cents per share compared with 11 cents reported in the year-ago period. The bottom line came way ahead of the Zacks Consensus Estimate of a loss of 44 cents.
Total revenues came in at $3,571 million, down from the prior-year quarter’s level of $3,715 million. However, the metric beat the Zacks Consensus Estimate of nearly $3,519 million. Net sales dipped 3.3% year over year to $3,355 million. Comparable sales or comps decreased by 4.3%.
Kohl's gross margin expanded 67 basis points (bps) to 39% in the reported quarter due to lower digital-led shipping costs, reduced freight expenses and simplified value strategies, partly countered by product cost inflation and increased shrink.
SG&A expenses fell by 4.2% to $1,238 million. As a percentage of total revenues, SG&A expenses declined 13 bps to 34.7%. This resulted from reduced Sephora openings and associated store refreshes (compared with the year-ago period) and overall cost management, partly negated by wage cost headwinds.
The company posted an operating income of $98 million, up 19.5% from $82 million in the year-ago period. The operating income margin rose 55 bps to 2.8%.
Other Financial Details
Kohl’s ended the quarter with cash and cash equivalents of $286 million, long-term debt of $1,637 million and shareholders’ equity of $3,720 million.
In February 2023, the company retired bonds of $164 million. In the full-year 2023, Kohl’s plans to retire bonds worth $111 million, which are maturing in December 2023.
Management expects capital expenditures in the band of $600-$650 million in the full-year 2023 (including the expansion of its Sephora collaboration and store refresh actions).
Guidance
Kohl’s reiterated its guidance for the full-year 2023. The company expects net sales to decline 2-4%, which includes the impact of a 53rd week. The operating margin is likely to be about 4%.
Earnings per share (EPS), excluding non-recurring charges, are envisioned in the band of $2.10-$2.70 compared to the adjusted loss of 15 cents reported in fiscal 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -70.82% due to these changes.
VGM Scores
At this time, Kohl's has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Kohl's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Kohl's is part of the Zacks Retail - Regional Department Stores industry. Over the past month, Dillard's (DDS), a stock from the same industry, has gained 13.3%. The company reported its results for the quarter ended April 2023 more than a month ago.
Dillard's reported revenues of $1.58 billion in the last reported quarter, representing a year-over-year change of -1.7%. EPS of $11.77 for the same period compares with $13.37 a year ago.
Dillard's is expected to post earnings of $4.21 per share for the current quarter, representing a year-over-year change of -54.7%. Over the last 30 days, the Zacks Consensus Estimate has changed -11.1%.
Dillard's has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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