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Kohl's slips lower in pre-market as investors raise concerns around company's outlook
AInvestTuesday, Mar 12, 2024 9:45 am ET
2min read

Discount department store giant Kohl's Corporation (KSS) has reported its earnings for the fourth quarter of the fiscal year, exceeding Wall Street expectations. Shares have slipped below support at the 50-sma ($27) and are testing the lower end of the Bollinger Band ($26.40). This lines up as a critical level for investors to hold. The weakness can be attributed to the cautious outlook provided by KSS. 

The company announced earnings per share (EPS) of $1.67, beating the consensus estimate of $1.28. This compares to a loss of ($2.49) per share in the same period last year. The strong performance was primarily driven by better-than-expected gross margin expansion. 

Net sales for the quarter came in at $5.71 billion, in line with expectations. However, the company experienced a 4.3 % decline in comparable sales, which was below analysts' estimates of a 3.1% decrease.

Despite this decline, the company managed to improve its gross margin by 940 basis points to 32.4%, surpassing the consensus estimate for 910 basis points of leverage to 32.1 %. The improvement in gross margin was attributed to reduced clearance markdowns, lower freight costs, and decreased digital-related shipping expenses. 

Furthermore, Kohl's managed to leverage its selling, general, and administrative (SG&A) expenses, which came in at 27.0% of total revenue, beating the consensus estimate of 26.1%. The reduction in marketing and distribution costs contributed to the 80 basis points of leverage. 

As a result, the operating margin expanded by 1,000 basis points to 5.0%, outperforming the consensus estimate of a 980 basis point expansion to 4.8% for the quarter.

Inventory was $2.9 billion, a decrease of 10% year-over-year, which reflects the company's ongoing efforts to manage inventory effectively. 

The company expects total sales growth to be flat to up 1% for FY25, which compares to the consensus estimate of up 0.8%. Comp sales are expected to be flat to up 2% vs. the consensus of 1.3%. The operating margin outlook of 3.6%-4.1 % for FY24 is also below the consensus estimate of 4.2%, and is expected to benefit from YoY gross margin expansion. 

On the bottom line, management guided to FY24 EPS of $2.10-$2.70, with the midpoint of $2.40 coming in below the consensus estimate of $2.62. 

Kohl's also announced a partnership with WHP Global to bring the Babies R Us brand to approximately 200 Kohl's stores in the form of shop-in-shops. The partnership not only expands Kohl's baby assortment both in-store and online, but it also allows customers to utilize the registry offering to build and share gift lists. 

Overall, Kohl's Q4 earnings report reflects the company's ability to manage inventory effectively and drive growth through strategic partnerships. However, the FY25 outlook indicates challenges for the department store category, with expectations of flat sales and pressure on operating margins and EPS. Therefore, maintaining a Market Perform rating is appropriate, pending further commentary on the company's long-term strategy.


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