On Jul 11, 2014, we issued an updated research report on
). The specialty retailer reported first-quarter 2014 results on
Kohl's first quarter fiscal 2014 earnings of 60 cents per share
missed the Zacks Consensus Estimate of 62 cents by 3.2% and the
prior-year quarter earnings by 9%. Earnings dipped due to lower
sales and higher operating expenses during the quarter. Net sales
dipped 3.1% and also missed the Zacks Consensus Estimate due to a
decline in comparable sales and higher inventory levels caused by
lower sales in the previous quarter.
Comps declined 3.4% during the quarter, which compared
unfavorably with a decline of 1.9% in the prior-year quarter and a
2.0% decline in the prior quarter due to a challenging retail
environment. While gross margin expanded due to lower costs of
merchandise, operating margin declined due to higher operating
expenses particularly higher e-commerce costs.
Despite soft first quarter results, we have faith in the
company's strong fundamentals. Kohl's has a solid brand portfolio.
It has expanded in the apparels, fashion jewelry/beauty brand and
cosmetic categories. Kohl's continuously focuses on introducing new
brands in order to keep the inventory assortment fresh and drive
customer traffic to its stores and website.
Furthermore, we believe that Kohl's initiative "The Greatness
Agenda," started during the first quarter of 2014, will help the
company to increase transactions per store and sales. Under this
initiative, the company will focus on providing the right
merchandise mix and tailoring products to customer needs across
every channel. Kohl's has also designed a reward system for its
customers to offer additional savings and to increase customer
In addition, Kohl's is working toward price management
strategies to increase savings. The company has also made
aggressive investments to develop and upgrade its e-commerce
business, which is quite encouraging.
However, a gloomy consumer spending and higher apparel costs
anticipated in 2014 keep us on the sidelines. Moreover, Kohl's lack
of international exposure makes it vulnerable to a weak U.S.
economy and declining consumer spending environment in the U.S.
markets. Kohl's currently carries a Zacks Rank #3 (Hold).
However, better-ranked stocks in the retail sector include
Foot Locker, Inc.
). All of them carry a Zacks Rank #2 (Buy).
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