The next earnings report for Kohl’s (NYSE:KSS) – which will be announced on Tuesday before the market opens – will probably not be enjoyable for CEO Michelle Gass. The deterioration of the department store category is showing no signs of letting up. And the stock price certainly bears this out.
Since November 2019, KSS stock has gone from $59 to $38. Of course, this has been the case with other operators like Macy’s (NYSE:M) and JC Penney (NYSE:JCP).
Note that the prior earnings report for KSS was far from encouraging. Sales were essentially flat on a year-over-year basis and the adjusted earnings came to 74 cents a share, which was below the Street consensus of 86 cents a share.
But the main problem was the guidance for 2019. The company revised the earnings per share estimate to $4.75 to $4.95, compared to the prior forecast of $5.15 to $4.45. As for the Street, it was looking for $5.19 per share.
If it weren’t for the aggressive price cutting and discounts, the top-line would have been worse.
Q4 Expectations
OK then, so what are the expectations for the fourth quarter? Revenues are estimated to be flat at roughly $6.52 billion and earnings per share to be $1.88.
Interestingly enough, Kohl’s should be able to meet or beat this. The reason is that, on Jan. 9, the company announced its preliminary estimates which included adjustments for the holiday shopping season.
Here’s what Gass had to say:
We continue to see momentum in key areas including our digital business, active, beauty and children’s, and solid performance in footwear and men’s. This was offset by softness in women’s, which we are working with speed to address.
Regarding the fourth quarter, here are some other highlights to note:
- In select stores, Kohl’s launched curated spring assortments. Examples include Knockaround sunglasses, Montiel women’s activewear, Starfish Project jewelry and AdoreMe intimates and sleepwear.
- The company announced a new online-only private label brand called Happitat. It is focused on such things as quilts, bath towels, rugs and sheets, which have features like bamboo and recycled polyester.
- Kohl’s continues to bolster its beauty offerings by adding well-known brands. For example, there is a pilot for in-store experiences in 12 stores. There are also partnerships with Ralph Lauren (NYSE:RL), Dolce & Gabbana and even Facebook (NASDAQ:FB), which has built “The Beauty Checkout.”
- KSS entered an alliance with WW International (NASDAQ:WW) to offer health and wellness products and plans.
- Ethisphere named Kohl’s as one of the “World’s Most Ethical Companies,” based on factors like ethics/compliance programs, culture of ethics, governance and leadership/reputation. There were only two retailers on the list.
Bottom Line on KSS Stock
The sentiment for Kohl’s stock is certainly at awful levels. There is also a significant short position (at about 14% of the float).
Keep in mind that the valuation is fairly low as well, with the price-to-earnings multiple at 9x. In fact, the average price target for KSS stock is $47.19, which assumes 23% upside. Oh, and the dividend is juicy, at 6.7%.
Right now, KSS stock does look oversold. Besides, the company is also making attempts to reinvent itself, in terms of the merchandise and partnerships. So if some of these efforts start to show promise, then the shares could be poised for a recovery.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.