Here's Why Kohl's (KSS) Q3 Earnings, Sales Are Set to Grow

Kohl's CorporationKSS is slated to release third-quarter fiscal 2018 results on Nov 20. This department store chain has delivered average positive earnings surprise of nearly 10% in the trailing four quarters.

Kohl's Corporation Price and EPS Surprise

Kohl's Corporation Price and EPS Surprise | Kohl's Corporation Quote

Let's see what's in store for the company this time around.

What to Expect?

The Zacks Consensus Estimate for earnings currently stands at 96 cents, which has remained stable in the past 30 days and also compares favorably with 70 cents per share in the year-ago quarter. Moreover, the consensus mark for revenues is $4,619 million, reflecting growth from $4,332 million in the year-ago quarter.

Factors Impacting Kohl's

Kohl's has been gaining from its sturdy comparable store sales (comps) trend, which continued to fuel its performance in the second quarter of fiscal 2018. Incidentally, comps registered an increase of 3.1% during the second quarter, preceded by 3.6% rise in first-quarter fiscal 2018, and 6.3% and 0.1% growth during the fourth and third quarters of fiscal 2017, respectively. Comps in the second quarter gained from strength in both store and digital channels, while proprietary and national brands also portrayed sturdy performances. Additionally, the company's Men's and Women's apparel businesses along with Footwear witnessed strength.

In fact, Kohl's comps have been gaining from the company's Greatness Agenda strategic initiative, focus on boosting traffic and enhanced operational excellence. Notably, the Greatness Agenda initiative was commenced in first-quarter fiscal 2014, designed to drive transactions per store and sales. Also, Kohl's has been strengthening its ties with retail giant Amazon AMZN to drive traffic. In the long run, the company is expected to receive significant boost from this partnership. Further, Kohl's recent partnership with Aldi is also expected to strengthen its store base. Notably, the Zacks Consensus Estimate for comps growth in the second quarter is pegged at 1.6%.

Apart from these factors, and Kohl's regular innovation and brand-building efforts, the company is poised to keep gaining from its e-commerce business, which has improved significantly over the last few years. In order to improve its online offerings, Kohl's has been expanding its e-commerce fulfillment centers. Additionally, the company focuses on strengthening its in-store pickups. To this end, the company launched Buy-Online-Ship-to-Store (or BOSS) in July, which will be rolled out to more stores in the coming months. This initiative, which is expected to widen assortments for customers, is likely to boost store traffic. The company's sustained focus on technology improvements and omnichannel expansion is expected to continue driving online sales. Markedly, digital sales witnessed a mid-teen increase during the second quarter, with almost half of it coming from mobile sales.

Will Increased Costs be Offset?

Well, Kohl's has been experiencing rising selling, general and administrative (SG&A) expenses for a while now. SG&A expenses increased 4% during the second quarter of fiscal 2018, due to higher IT expenses. This was preceded by 3.7% rise during first-quarter fiscal 2018, following increases of 7.3% and 1.4% during the fourth and third quarters of fiscal 2017, respectively. For this fiscal, management now expects the increase in SG&A expenses to be at the higher end of its previously guided range of 1-2%.

Nevertheless, we expect Kohl's robust revenue-driving initiatives to counter these headwinds. Also, Kohl's efficient inventory management has been helping the company achieve cleaner inventory levels. The company has been achieving per store inventory reductions for ten straight quarters now, while the gross margin has been expanding for three quarters in a row. In second-quarter fiscal 2018, the company's inventory per store decreased 8% that helped the gross margin expand 42 basis points as sustained inventory management efforts led to cleaner inventories and lower promotional markdowns.

Clearly, Kohl's is most likely to sustain its growth trend on the back of the aforementioned upsides. This gets reconfirmed by management's raised outlook for fiscal 2018, which also gives out positive signals for the quarter to be reported.

What the Zacks Model Unveils

Our proven model doesn't show that Kohl's is likely to beat bottom-line estimates this quarter. For this to happen, the stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Though Kohl's has a Zacks Rank #2, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

L Brands, Inc. LB has an Earnings ESP of +35.25% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

The TJX Companies, Inc. TJX has an Earnings ESP of +0.89% and a Zacks Rank #3.

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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 Nasdaq, Inc.

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

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