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Why Is Kohl's (KSS) Down 12.3% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Kohl's (KSS). Shares have lost about 12.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Kohl's due for a breakout? 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 catalysts.

Kohl's Q1 Earnings Lag Estimates, Outlook Slashed

Kohl's posted dismal first-quarter fiscal 2019 results. Adjusted earnings of 61 cents per share missed the Zacks Consensus Estimate of 67 cents and declined 4.7% on a year-over-year basis. This can be accountable to soft revenues and increased SG&A expenses.

Total revenues came in at $4,087 million, which fell 2.9% from the prior-year quarter. Moreover, the figure came below the Zacks Consensus Estimate of $4,203 million. Net sales also decreased 3.3% to $3,821 million, while other revenues grew 4.3% to $266 million in the quarter.

Further, comps declined 3.4% against growth of 3.6% recorded in the year-ago quarter. This crushed the company’s positive comps record of six straight quarters.

Moving on, gross margin fell 6 basis points (bps) to 36.8% in the reported quarter. SG&A expenses as  percentage of sales expanded 130 bps to 31.2%. Further, operating income came in at $118 million, down from the prior-year quarter’s $210 million.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $543 million, long-term debt of $1,855 million and shareholders’ equity of $5,442 million. The company generated net cash from operating activities of $136 million during the first quarter.

On May 15, Kohl’s announced a quarterly cash dividend of 67 cents per share, which is payable on Jun 26, 2019, to stockholders of record as on Jun 12.

Other Developments

The company unveiled a long-term contract with Fanatics to widen the fan gear product range for Kohl’s online customers. Fanatics is a leading worldwide name for licensed sports merchandise. The wide range of products, including team apparel, jerseys and other merchandise categories, will be available to Kohl’s online shoppers from fall 2019.

Guidance

Kohl’s clearly began fiscal 2019 on a soft note, owing to the weaker-than-anticipated sales. However, the company is on track with its sales-driving initiatives, which are likely to enhance its performance in the second half. To this end, management is particularly encouraged about the nationwide rollout of its returns program with Amazon along with other extended programs and brand launches.

While the company is focused on efficient cost management, it is somewhat conservative about fiscal 2019. Consequently, Kohl’s slashed its bottom-line view and envisions earnings per share to be $5.15-$5.45, down from the prior projection of $5.80-$6.15.

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 -17.18% due to these changes.

VGM Scores

Currently, Kohl's has a nice Growth Score of B, a grade with the same score on the momentum front. 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. It's no surprise Kohl's has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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