Why Kohl's (KSS) Stock Is Trading Lower Today
What Happened:
Shares of department store chain Kohl’s (NYSE:KSS) fell 5.5% in the morning session after the company reported third quarter results with same-store sales and net sales (excluding credit card operations revenue) falling below Wall Street's expectations. Gross margin and expense control were better, leading to a nice EPS beat vs. analysts' expectations. Guidance was also mixed, with the full year outlook lowered for same-store sales but raised for EPS. However, with the full year operating margin maintained, the EPS raise is likely from non-fundamental factors such as lower interest expense or a lower tax rate. Lastly, management commentary shows that the company could face further choppy topline results in the near term. "Our strategies to reposition Kohl's for improved sales and earnings performance remain in the early stages." Zooming out, we think this was a mixed quarter with some positives and some negatives.
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What is the market telling us:
Kohl's's shares are quite volatile and over the last year have had 35 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 4 days ago, when the company gained 5.4% following strong earnings reports from apparel retailers, including Macy's, Ross Stores, and Gap. Macy's reported an impressive "beat and raise" quarter, which significantly blew past analysts' EPS expectations, driven in part by same-store sales and revenue beats. Full year guidance was also raised slightly across the board, from same-store sales to revenue to EPS, demonstrating confidence in its holiday season strategy amid macroeconomic challenges.
Likewise, Ross Stores reported third quarter results with revenue outperforming Wall Street's estimates, driven by better-than-expected same-store sales growth and more new store openings. Gross margin also exceeded expectations. Lastly, Gap reported third quarter results that blew past analysts' revenue and EPS expectations, although its revenue declined in absolute terms. These beats were driven by better-than-expected same-store sales performance (analysts forecasted a 7% decline, and Gap posted a 2% decline). The success of these top retailers tells us that demand for apparel is healthy despite some fears about the consumer and despite some promotional activity.
Kohl's is down 8.1% since the beginning of the year, and at $22.60 per share it is trading 35% below its 52-week high of $34.76 from February 2023. Investors who bought $1,000 worth of Kohl's's shares 5 years ago would now be looking at an investment worth $340.42.
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