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Why Kohl's Stock Dropped 5% Today

Rich Smith, The Motley Fool

What happened

Today brings good news and bad news -- but mostly bad news -- for Kohl's (NYSE: KSS) stock shoppers. The stock is down 5.3% in noonday trading (EDT) after investors took a look at Q2 earnings results released this morning and declared them "mixed."

On the plus side, Kohl's beat estimates for the quarter, reporting profits of $1.51 per diluted share and pro forma profits of $1.55. (Analysts were looking for only $1.53). Sales likewise exceeded expectations, coming in at $4.4 billion where analysts had been looking for only $4.2 billion.

Red arrow crashes into the floor

So what

But that's the end of the good news.

Although sales and earnings both beat expectations, they were also both down from Q2 2018 results. Sales dropped 3% year over year, as did same-store sales, while earnings under generally accepted accounting principles (GAAP) declined by a much steeper 14%. (Pro forma, Kohl's says earnings declined only 12%).

Gross margins declined 72 basis points year over year, but net profit margins were down closer to a full percentage point -- 5.4%.

Now what

That said, Kohl's remains confident that the rest of this year will show improvement. Better same-store sales than in Q1 is a trend that "has continued into August driven by a successful start to the back-to-school season," said CEO Michelle Gass. Problem is, that's not the only trend that will continue.

Management stuck with its guidance for adjusted earnings of $5.15 to $5.45 this year. On the one hand, that would be significantly better than the $5.23 per share that Wall Street is looking for. On the other hand, it would be another decline from the $5.60 per share Kohl's reported for fiscal 2018.

Just as we saw in Q2, Kohl's looks likely to claim an earnings beat for the full year -- even as its earnings shrink. You can hardly blame investors for being unhappy with that.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com