Kohl’s Corporation KSS shares fell 4% on Friday after the company lowered its guidance and said inflation was boosting its sales.
On Thursday, Kohl reported second-quarter adjusted earnings per share of $1.11 versus $4.09 billion. Both numbers beat analyst consensus estimates of $1.30 billion and $3.85 billion, respectively. Sales fell by 8.1% compared to the previous year.
Same-store sales fell 7.7% in the quarter. Kohls also said its inventory is up 48% year over year.
Looking ahead, the company lowered its adjusted EPS guidance for fiscal 2022 from a previous range of $6.45 to $6.85 to a new range of $2.80 to $3.20.
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Macroeconomic Pressure: Bank of America analyst Lorraine Hutchinson said she remains cautious as macro pressure on Kohls mounts.
“MGMT is calling for a slowdown in middle-income consumers, citing lower spend per transaction and a shift to value-driven private labels,” Hutchinson wrote.
Morgan Stanley analyst Kimberly Greenberger said Kohl’s “fundamentals are likely to deteriorate before they improve.”
“We are concerned that KSS’s financial resilience has been reduced if the road ahead remains bumpy,” Greenberger wrote.
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Credit Suisse analyst Michael Binetti said Kohl’s updated forecast was concerning but could be conservative.
“We are concerned to hear that kidswear undermined the series in Q2 ahead of the pivotal BTS season,” Binetti wrote.
Hard margin prospects: Dana Telsi, an analyst at Telsey Advisory Group, said Kohl’s need for promotional activity doesn’t bode well for margin prospects.
“Promotional activity weighs on margins in the second half as the company navigates increased inventories, while ongoing investments in strategic initiatives also include additional spending,” Telsey wrote.
Guggenheim analyst Robert Drbull said improving inventories and reducing freight pressure should set Kohl’s up for a better 2023.
“While we are disappointed with the earnings decline, we believe that at this level the stock reflects the many concerns and challenges facing the company and offers an attractive risk/reward trade-off,” Drbull wrote.
Ratings and Price Targets:
- Bank of America has an Underperform rating and a target of $26.
- Morgan Stanley has an Underweight rating and a target of $19.
- Credit Suisse has a neutral rating and a target of $28.
- Telsi Advisory Group has a market performance rating of $35.
- The Guggenheim has a buy rating and a price target of $44.
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