Kohl's Shows Stability on Fundamentals - Analyst Blog


On Jul 11, 2014, we issued an updated research report on Kohl's Corp ( KSS ). The specialty retailer reported first-quarter 2014 results on May 15.

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 loyalty.

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 Macy's Inc. ( M ), Foot Locker, Inc. ( FL ) and The Kroger Co. ( KR ). All of them carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: KSS , KR , M , FL



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