Kohl's Corp. Experiences Significant Share Drop Following Disappointing Earnings Report

First Quarter Earnings Report

Kohl's Corp. experienced a significant drop in shares during the early morning cash session due to a disappointing earnings report. The company had to cut its guidance for the full year after first-quarter results missed nearly every metric. Comparable sales, a measure of the performance of stores open for more than a year, fell by 4.4% in the quarter that ended on May 4. This marks the ninth consecutive decline. Analysts had expected a 1.74% decline.

Snapshot of First Quarter Results

Here's a quick overview of the first quarter results: - Comparable sales fell by 4.4%, compared to the estimated 1.74% decline - Adjusted loss per share was 24c, compared to the estimated EPS of 6.7c - Gross margin was 39.5%, matching the estimate - Net sales were $3.18 billion, a 5.3% decrease year-on-year, missing the estimated $3.34 billion - Merchandise inventories were $3.08 billion, a 13% decrease year-on-year, missing the estimated $3.24 billion The midmarket department store chain also reduced its full-year forecast to $1.25 to $1.85 a share, significantly below the consensus estimate of $2.39 a share.

Snapshot of Full-Year Forecast

Here's a quick overview of the full-year forecast: - Adjusted EPS is expected to be $1.25 to $1.85, down from the previous estimate of $2.10 to $2.70 - Net sales are expected to fall by 2% to 4%, down from the previous estimate of -1% to +1% - Operating margin is expected to be 3% to 3.5%, down from the previous estimate of 3.6% to 4.1%

CEO's Statement

CEO Tom Kingsbury stated that regular price sales increased year-over-year, with early success in underpenetrated categories, positive trends in the Women's business, and continued strong growth in Sephora. However, lower clearance sales compared to last year represented a more than 600 basis point drag on comparable sales. Kingsbury also stated that the company is approaching its financial outlook for the year more conservatively due to the first quarter underperformance and ongoing uncertainty in the consumer environment.

Wall Street Analysts' Response

Wall Street analysts responded to the earnings report with mixed reactions. Some analysts pointed out that big box retailers without a powerful consumables anchor and/or aggressive pricing are being squeezed hard in the present environment. Others noted that while gross margin and SG&A were both better than consensus, the issue with KSS has been (and continues to be) the top-line.

Other Retailers' Performance

Elsewhere in the retail sector, Foot Locker Inc. saw its shares rise by as much as 27%, the highest in years, after better-than-expected comparable sales provided insight into CEO Mary Dillon's turnaround plan. However, Dillon warned about consumers' exposure to inflation, interest rates, and reduced savings. Other retailers, including Dollar General Inc., Best Buy Co., and Burlington Stores Inc., also reported their earnings, providing a mixed picture of the retail sector.

Goldman's Analysis of Consumer Health

This week's news from retailers continues to reinforce Goldman's theme about deteriorating working poor consumers.

What's Your Take?

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