Kohl's (KSS) Up 6.4% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Kohl's (KSS). Shares have added about 6.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Kohl's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Kohl's Q2 Earnings Beat Estimates, Sales Down Y/Y

Kohl's reported second-quarter fiscal 2019 results, with earnings surpassing the Zacks Consensus Estimate and revenues missing the same. Moreover, the top and the bottom line declined year on year. Additionally, comps continued to remain sluggish. Management has reinstated its bottom-line guidance for the fiscal.

Q2 in Detail

Kohl’s adjusted earnings of $1.55 surpassed the Zacks Consensus Estimate of $1.52. However, the bottom line declined 12% on a year-over-year basis. The downside was caused by soft revenues.

Total revenues of $4,430 million fell 3.1% from the prior-year quarter’s figure. Moreover, the figure came below the Zacks Consensus Estimate of $4,455 million. Net sales also declined 3.3% to $4,169 million, while other revenues inched up 0.4% to $261 million in the quarter.

Further, comps declined 2.9% against growth of 3.1% recorded in the year-ago quarter. This marks the second consecutive period of comps decline, following positive comps recorded in the previous six quarters.

Moving on, gross margin plummeted almost 70 basis points (bps) to 38.8% in the reported quarter. SG&A expenses, as percentage of revenues, expanded 80 bps to 28.6%. Further, operating income came in at $376 million, down from the prior-year quarter’s figure of $452 million.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $625 million, long-term debt of $1,855 million and shareholders’ equity of $ 5,455 million. The company generated net cash from operating activities of $676 million during the first six months of fiscal 2019.

On Aug 13, Kohl’s announced a quarterly cash dividend of 67 cents per share, which is payable on Sep 25, 2019 to stockholders of record as on Sep 11.

Guidance

Kohl’s, which began fiscal 2019 on a soft note, continued to witness weak top line in the second quarter. Nevertheless, management is optimistic regarding improved performance in the forthcoming periods. In fact, the company is witnessing positive comps trends in August, courtesy of robust start to the back-to-school season. Additionally, management expects that its upcoming brand launches and expansion programs will yield. Also, it is encouraged by higher traffic from the Amazon returns program.

That said, Kohl’s reiterated the bottom-line view for fiscal 2019. It continues to envision earnings per share in the range of $5.15-$5.45. The Zacks Consensus Estimate is currently pegged at $5.23.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Kohl's has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Kohl's has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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