Kohl’s Stock Drops on Disappointing Guidance Despite EPS Beat

Kohl’s Corporation reported its fourth-quarter earnings on Tuesday, showing better-than-expected earnings per share but disappointing investors with a significantly weaker outlook for fiscal 2025. The stock tumbled 15% premarket, reflecting concerns over the company’s ability to navigate a difficult retail environment and restore sales growth. Shares have remained pinned at the $10 level and are not seeing an early bounce with the market.

Q4 Performance: EPS Beat, but Sales Continue to Decline

Kohl’s reported earnings per share (EPS) of $0.43, well below the $1.67 from a year ago and missing analyst estimates of $0.72. Adjusted EPS, which excludes certain one-time items, came in at $0.95, exceeding expectations of $0.73.

Revenue for the quarter was $5.18 billion, down 9.4% year-over-year, but in line with analyst expectations. Comparable sales declined 6.5%, slightly better than the anticipated 6.99% drop but still reflecting weak consumer demand.

Gross margin improved slightly to 32.9%, up from 32.4% last year, and above estimates of 32.7%. The improvement was attributed to optimized promotional events and lower digital penetration, though the overall decline in sales weighed on profitability.

Operating income came in at $126 million, missing consensus estimates of $185.8 million, reflecting continued margin pressure and weaker top-line performance.

Guidance Shock: Sales and Profitability Set to Decline Further

The biggest disappointment came from Kohl’s fiscal 2025 guidance, which fell well short of expectations. The company now expects:

- EPS between $0.10 and $0.60, compared to analysts’ forecast of $1.32.

- Net sales to decline 5% to 7%, compared to expectations for a much smaller drop.

- Comparable sales to decline 4% to 6%, significantly worse than the consensus estimate for a 0.9% decline.

- Operating margin projected at 2.2% to 2.6%, well below analysts’ forecast of 3.0%.

Adding to investor concerns, Kohl’s slashed its quarterly dividend from $0.50 per share to $0.125 per share, marking a 75% reduction. This move signals the company is prioritizing liquidity and investment in its turnaround efforts but raises doubts about long-term shareholder returns.

Consumer Trends and Management Strategy

Kohl’s results reflect ongoing challenges in consumer spending habits, particularly among middle-income shoppers. The company cited softness in discretionary categories and pressure from economic uncertainty, which weighed on sales during the holiday season.

CEO Ashley Buchanan, who took over in January, acknowledged the need for a strategic shift and outlined key focus areas for fiscal 2025:

1. Revamping the product assortment by improving inventory across all customer segments. This includes reintroducing lost categories such as fine jewelry, petites, and home goods while strengthening partnerships with Sephora and home decor brands.

2. Repositioning Kohl’s as a value leader through better pricing strategies, stronger private-label offerings, and more effective promotions.

3. Enhancing the omni-channel experience, improving in-stock availability, store layouts, and digital engagement to better align with consumer preferences.

While management is taking steps to stabilize the business, execution risks remain high, particularly in an environment where discretionary spending remains fragile.

Stock Reaction and Investor Takeaways

Shares of Kohl’s had already been under pressure but saw an even sharper decline after the earnings report, dropping to $10.20 premarket, marking a 17% decline from prior levels. The stock now faces a critical test, as investors assess whether the company can execute on its turnaround strategy or if continued sales declines will further erode profitability.

Despite the adjusted EPS beat, the weak guidance and dividend cut overshadowed the results. The company’s full-year outlook suggests another year of declining sales, raising concerns about the retailer’s ability to compete effectively in a challenging retail landscape.

For investors, the key focus moving forward will be on management’s ability to drive a turnaround, particularly in categories where Kohl’s has lost market share. However, with a weakening macroeconomic backdrop and persistent execution challenges, the stock faces an uphill battle in regaining investor confidence.