It has been about a month since the last earnings report for Kohl's (KSS). Shares have added about 1.4% 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 the most recent earnings report in order to get a better handle on the important drivers.
Kohl's Q4 Earnings & Sales Beat Estimates
Kohl's Corporation delivered fourth-quarter fiscal 2018 results, wherein adjusted earnings of $2.24 per share easily surpassed the Zacks Consensus Estimate of $2.17 and rallied 19.8% on a year-over-year basis. We believe that bottom-line growth was backed by lower interest expenses and decline in SG&A costs.
Total revenues came in at $6,823 million, which fell 3.3% from the prior-year quarter’s figure. Nonetheless, the figure came ahead of the Zacks Consensus Estimate of $6,780 million. Net sales also fell 3.4% to $6,535 million, while other revenues dipped 2.4% to $288 million in the quarter.
Further, comps rose 1%, against rise of 6.3% recorded in the year-ago quarter. Well, comps have been positive since the past six quarters. Comps in the quarter were fueled by solid performance in the holiday season.
Moving on, gross margin remained nearly flat at 33.5% in the reported quarter. However, operating income came in at $441 million, down from the prior-year quarter’s $567 million.
Other Financial Details
Kohl’s ended the quarter with cash and cash equivalents of $934 million, long-term debt of $1,861 million and shareholders’ equity of $5,527 million. The company generated net cash from operating activities of $2,107 million during fiscal 2018.
Also, management announced a 10% hike in its quarterly dividend, taking it to 67 cents per share. This is payable on Apr 3, 2019, to shareholders of record as on Mar 20. Additionally, Kohl’s intends to repurchase shares worth $400-$500 million in fiscal 2019.
Kohl’s inaugurated one store and relocated two in fiscal 2018. The company concluded the fiscal with 1,159 stores spread across 49 states.
Other Developments & Guidance
Kohl’s intends to shut down underperforming outlets this April and inaugurate four small-format outlets later this fiscal. The company is on track to consolidate its call centers that support the company’s online and Kohl’s Charge customers.
These factors along with some actions related to employee’s retirement program are likely to result in annual SG&A savings of nearly $20 million. Further, these actions are expected to result in deprecation savings of roughly $5 million.
However, these moves are expected to result in pre-tax charges of about $50-$55 million in the first quarter of fiscal 2019.
Management is focusing on boosting traffic. In fiscal 2019, the company expects comps to be flat to up 2%. Gross margin is likely to rise up to 10 basis points year over year. Further, SG&A costs are anticipated to rise 1-2%.
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 -5.35% due to these changes.
At this time, Kohl's has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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.
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 #2 (Buy). We expect an above average return from the stock in the next few months.
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