) is set to report first quarter 2013 results on May 16, before
the market opens. In the fourth quarter of 2012, Kohl's delivered
a 1.84% positive surprise. Let's see how things are shaping up
prior to this announcement.
Factors to Consider this Quarter
Kohl's slow inventory turnover along with improper pricing and
ineffective marketing strategies are expected to dent the
company's sales in the near term. The company has been struggling
with higher inventory levels since the last few quarters. In
order to reduce the burden of inventory and increase sales in the
fourth quarter, the company sold its merchandises at a lower
margin. Moreover, Kohl's inability to attract consumers in the
last holiday season (November-December 2012) has further
increased its inventory levels. Lower consumer confidence toward
the company also forced Kohl's to give more-than-expected
discounts to its customers.
Though the company is aggressively promoting its brands and
investing in marketing and e-commerce initiatives to drive sales,
we believe that these efforts might hurt margins in the upcoming
quarter. Furthermore, through its global inventory visibility
project, Kohl's aims to better manage in-store inventory. However
we do not expect that these initiatives will provide any benefit
in the upcoming quarter.
Our proven model does not conclusively show that Kohl's is
likely to beat earnings this quarter. That is because a stock
needs to have both a positive earnings Expected Surprise
Prediction (ESP) (Read:
Zacks Earnings ESP: A Better Method
) and a Zacks Rank #1, #2 or #3 for this to happen. That is not
the case here as shown below.
Negative Zacks ESP:
The Most Accurate estimate stands at 56 cents while the Zacks
Consensus Estimate is higher at 58 cents. That is a difference of
Zacks Rank #3 (Hold):
Kohl's Zacks Rank #3 (Hold) lowers the predictive power of ESP
because the Zacks Rank #3 when combined with a negative ESP makes
surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and #5 (Sell
rated stocks) going into the earnings announcement, especially
when the company is seeing negative estimate revisions momentum.
The Zacks Consensus Estimate for the first quarter moved down by
3.33% to 58 cents per share over the last 30 days as the tendency
for a downward revision was more obvious.
Other Stocks to Consider
Here are some other companies in the retail and wholesale
sector that can be considered as our model shows they have the
right combination of elements to post an earnings beat this
Harris Teeter Supermarkets Inc
), Earnings ESP of +1.47% and Zacks Rank #2 (Buy).
Costco Wholesale Corporation
), Earnings ESP of +1.96% and Zacks Rank #2 (Buy).
), Earnings ESP of +5.26% and Zacks Rank #3 (Hold).
COSTCO WHOLE CP (COST): Free Stock Analysis
HARRIS TEETER (HTSI): Free Stock Analysis
KOHLS CORP (KSS): Free Stock Analysis Report
SAKS INC (SKS): Free Stock Analysis Report
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