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Kohl's (KSS) Up 3.5% Since Last Earnings Report: Can It Continue?

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Zacks Equity Research
·4 min read
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A month has gone by since the last earnings report for Kohl's (KSS). Shares have added about 3.5% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Kohl's Q4 Earnings Top Estimates, Buybacks to Resume

Kohl's posted fourth-quarter fiscal 2020 results, wherein the top and bottom lines came ahead of the respective Zacks Consensus Estimate and the latter increased year over year.

After navigating through the pandemic, the company ended fiscal 2020 with a robust financial position and entered 2021 with solid momentum. Management remains impressed with the progress of its strategic initiatives and is set to deliver multi-year gains in sales and operating margin. The company is encouraged by several newly unveiled initiatives, especially the launch of its Sephora alliance in August. Thanks to a robust financial outlook, the company is set to resume its capital allocation strategy in 2021.

Talking of the financial outlook, management anticipates full-year 2021 net sales to grow in the mid-teens percentage range. Operating margin is likely to be 4.5-5%. Further, Kohl’s envisions earnings per share in the range of $2.45-$2.95, excluding non-recurring charges. In fiscal 2020, the company posted an adjusted loss of $1.21 per share.

Q4 in Detail

Kohl's posted adjusted earnings of $2.22 per share, which increased 12% year over year. Notably, the figure includes an extra tax benefit of $1.15 per share, stemming from tax planning strategies. The bottom line exceeded the Zacks Consensus Estimate of $1.04 per share.

Total revenues came in at $6,141 million, down 10.1% from the prior-year quarter’s levels. Nonetheless, the metric surpassed the Zacks Consensus Estimate of $6,124 million. Net sales declined 10.1% in the quarter.

Gross margin contracted 73 basis points to 32% in the quarter under review.

SG&A expenses declined 8% year over year to $1,603 million. However, as a percentage of total revenues, SG&A expenses increased to 26.1% in the quarter from 25.5% in the prior-year quarter. The company reported operating income of $316 million compared with $401 million posted in the prior-year quarter.

Other Financial Details

Kohl’s solidified its financial position in the fourth quarter, with cash and cash equivalents of $2,271 million. The company ended the quarter with long-term debt of $2,451 million and shareholders’ equity of $5,196 million. Further, Kohl’s generated net cash from operating activities of $1,338 million during the twelve months ended Jan 30.

Management said that it intends to resume capital allocation in 2021, which includes raising capital expenditures, reinstating dividend payments, restarting buyback activities and undertaking liability management strategies. On Feb 24, the company declared a quarterly cash dividend of 25 cents per share, which is payable on Mar 31 to shareholders of record as of Mar 17. The company expects share buybacks of $200-$300 million in 2021.

Further, capital expenditures are expected in the range of $550-$600 million, which includes the launch of the Sephora deal, opening of the company’s sixth e-commerce center and store refreshment actions.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -95.4% due to these changes.

VGM Scores

At this time, Kohl's has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.


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