Kohl's (KSS) Q1 Earnings: Focus on Sales to Pare Cost Woes?

Kohl's CorporationKSS is slated to release first-quarter fiscal 2018 results on May 22. The department store chain delivered a positive earnings surprise of 5.7% in the last reported quarter and has topped the Zacks Consensus Estimate by an average of 11.6% in the trailing four quarters. Let's see what's in store for Kohl's this time around.

Kohl's Corporation Price and EPS Surprise

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

Factors Driving Kohl's Sales

Kohl's is likely to continue gaining from its revenue driving initiatives, while the company's focus on boosting margins also bodes well. Though the company remains exposed to the risk of losing brick-and-mortar store traffic thanks to consumer shift toward online shopping, its robust e-commerce endeavors and other initiatives to counter these hurdles place it well. In fact, Kohl's efforts to draw traffic, including its solid ties with Amazon AMZN , have been aiding the company to deliver improved comps since the past two quarters. Incidentally, the company started accepting returns for Amazon customers on select products and will also provide free packing and shipping services for the merchandise to Amazon's fulfillment centers. This move followed Kohl's decision to sell Amazon devices, accessories and smart home devices in 10 selected stores in Los Angeles and Chicago. Kohl's believes that this store-within-store concept will boost stores traffic.

Moreover, Kohl's comps indicate that the company's strategic initiative, Greatness Agenda, is yielding results. The initiative, commenced in first-quarter 2014, was designed to drive transactions per store and sales. Apart from this, the company is benefiting from enhanced focus on prominent brands such as Nike NKE and Adidas ADDYY , while it has been cutting down on the number of in-house brands. Kohl's gained significant market share in active apparel and footwear up until the fourth quarter, and expects the trend to continue, based on assortment improvements.

Escalated Costs to be Offset?

However, Kohl's has been experiencing rising selling, general and administrative (SG&A) expenses for a while now. In fact, SG&A expenses increased 7.3% during fourth-quarter fiscal 2017, preceded by a 1.4% rise during the third quarter. Further, management expects SG&A expenses to rise in the bracket of 1-2% during fiscal 2018, which raises concerns for the quarter to be reported as well. Further, competition from discount retailers poses significant threats to the company's performance.

Nevertheless, these hurdles are likely to be offset by the growth endeavors. Also, the company has been strongly focused on curtailing inventories to boost profits. Notably, Kohl's effective merchandising initiatives bore a positive impact upon its fourth-quarter gross margin performance, which expanded 43 basis points. In fact, the company's speed and localization initiatives have been particularly gaining traction in benefiting inventory management and margin performance. Going ahead, for fiscal 2018, the company expects a mid-single digit decline in inventory levels. All these factors give out positive signals for Kohl's upcoming results, wherein we expect both top and bottom line to grow year over year.

Estimates in Numbers

The current Zacks Consensus Estimate for the quarter under review is pegged at 49 cents, which shows a 25.6% jump from 39 cents recorded in the year-ago period. The estimate has remained stable in the past 30 days. Further, analysts polled by Zacks expect revenues of $3,951 million, up 2.8% from the year-ago period reported figure.

What the Zacks Model Unveils

However, our proven model doesn't show that Kohl's is likely to beat bottom-line estimates this quarter. For this to happen, a 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 -1.15% makes surprise prediction difficult. You can see the complete list of today's Zacks #1 Rank stocks here .

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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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