Kohl's Smashes Q4 Earnings, But Guidance Sends Analysts Running

Ladies and gentlemen, buckle up! Kohl's just reported its Q4 earnings, and it's a tale of two cities. On one hand, the department store chain smashed earnings expectations, but on the other, the guidance sent analysts running for the hills. Let's dive in and see what's really going on with this retail giant.

First, the good news: Kohl's reported a "solid" earnings beat, thanks to controlled SG&A expenses and an improved gross margin. Net sales decreased by 9.4% year-over-year to $5.2 billion, but comparable sales only dropped by 6.7%. Not great, but not the end of the world either. The company's gross margin as a percentage of net sales increased by 49 basis points to 32.9%, and operating income was $126 million, a decrease of 270 basis points year-over-year. So, while Kohl's is still struggling with overall profitability, it's making progress in the right direction.



But here's where things get interesting: despite the earnings beat, Kohl's 2025 outlook is anything but rosy. The company expects net sales to decrease by 5% to 7% and comparable sales to drop by 4% to 6%. Diluted EPS is expected to land in the range of $0.10 to $0.60, compared to $0.98 generated in 2024. And get this: the company's 2025 outlook reflects both the economic uncertainty consumers are facing and the amount of time Kohl’s will need to make changes to its assortment. In other words, Kohl's is in for a bumpy ride.

So, what's the deal with the disappointing guidance? Well, it turns out that Kohl's has been making some strategic missteps in recent years. CEO Ashley Buchanan acknowledged that the company has erred by shifting away from core offerings like jewelry and its proprietary brands while promoting new categories. He even admitted that Kohl's has been making it hard for its loyal customers to love the brand. Ouch!

But don't count Kohl's out just yet. The company has identified three key initiatives to turn things around:

1. Regaining Traction in Core Categories: Kohl's plans to focus on categories that have lost business over the past few years, such as the legacy home assortment, fine jewelry, petites, and intimate apparel. This is a no-brainer, folks! Kohl's needs to get back to its roots and give customers what they want.

2. Improving Assortment Clarity: The company aims to drive improved assortment clarity across all categories, which will involve reinvigorating some of the company’s private label brands. This is a smart move, as it will help Kohl's stand out from the competition and give customers a reason to shop at Kohl's instead of its rivals.

3. Building on Momentum in Key Growth Categories: Kohl's plans to build on momentum in key growth categories such as Sephora, home decor, and impulse. This is a great way to attract new customers and drive sales growth.



Now, let's talk about the elephant in the room: the analyst cuts. Dana Telsey of Telsey Advisory Group maintained a Market Perform rating on Kohl's but cut the price target from $13 to $10. She noted that the company's 2025 outlook is significantly below market expectations and that the turnaround will take time to complete. She's right, folks! Kohl's is a long lead-time business, and it will take some time to see the results of the company's turnaround efforts.

So, what's the bottom line? Kohl's smashed Q4 earnings expectations, but the guidance sent analysts running for the hills. The company has identified key initiatives to turn things around, but it will take time to see the results. In the meantime, Kohl's is a stock to watch, not a stock to own. Stay tuned, folks! This story is far from over.