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Kohl's (KSS) to Report Q3 Earnings: Will it Disappoint?

Kohl's CorporationKSS is set to report third quarter 2015 results before the opening bell on Nov 12. Last quarter, this specialty retailer posted a negative surprise of 6.14%.

Let's see how things are shaping up prior to the announcement.

Factors to Consider

Kohl's Corporation remains cautious about its fiscal 2015 outlook due to a general slowdown in consumer spending. The company also remains concerned about its strategic initiative, "Greatness Agenda," as there are signs that it has failed to deliver results.

The company began an initiative, known as "the Greatness Agenda" during the first quarter of 2014, to increase transactions per store and sales. This has helped the company to deliver positive comps in the first and second quarters of 2015 and fourth quarter 2014, after persistent declines for more than a year.

However, Kohl's second quarter fiscal 2015 results were very disappointing, raising concerns over the initiative. Earnings declined 5% from the prior-year quarter impacted by lower-than-expected sales and lower margins. Sales increased only 0.6% from the year-ago level. Selling price per unit increased, while units per transaction decreased as customers purchased fewer items in response to the higher prices. Transactions decreased in the second quarter of 2015 due to delayed back-to-school shopping and the shift of sales in tax-free states from July to August. Comps increased 0.1% and were lower than the preceding quarter's growth of 1.4%. Lower spending on apparel and accessories and a general slowdown in consumer spending are also hurting sales at department stores.

Though the company remains optimistic on its initiative and expects to grow sales to $21 billion by 2017, we remain cautious on same-store sales and earnings in the soon-to-be-reported quarter.

Besides threat from online competitors and changing consumer tastes, the company also faces rising apparel costs and declining gross margin. The company also expects higher expenses related to beauty initiatives to hamper margins in the to-be reported quarter, as it liquidates the old product to make way for the new one. Estimates have also decreased for third quarter 2015 over the past 30 days.

Earnings Whispers

Our proven model does not conclusively show that Kohl's is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP: ESP for Kohl's is -2.82% as the Most Accurate Estimate of 69 cents is lower than the Zacks Consensus Estimate of 71 cents per share.

Zacks Rank: Kohl's carries a Zacks Rank #4 (Sell). 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.

Stocks to Consider

Stocks in the retail sector that have both a positive earnings ESP and a favorable Zacks Rank and are therefore worth considering include:

The Kroger Co. KR with an Earnings ESP of +2.56% and a Zacks Rank #2 (Buy).

Fred's, Inc. FRED with an Earnings ESP of +10.00% and a Zacks Rank #3 (Hold).

The TJX Companies, Inc. TJX with an Earnings ESP of +1.19% and a Zacks Rank #3.

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KROGER CO (KR): Free Stock Analysis Report

TJX COS INC NEW (TJX): Free Stock Analysis Report

KOHLS CORP (KSS): Free Stock Analysis Report

FREDS INC (FRED): Free Stock Analysis Report

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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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