Will Kohl's Corp. (KSS) Miss Earnings Estimates? - Analyst Blog

Kohl's Corporation KSS is set to report first quarter fiscal 2014 results before the opening bell on May 15. Last quarter, this specialty retailer posted a positive surprise of 1.96%. Let's see how things are shaping up prior to the announcement.

Factors to Consider

Kohl's has been facing the brunt of a challenging retail environment since the last few quarters. Sluggish comps, higher inventory levels and higher operating expenses remain concerns. Though its fourth quarter earnings beat the Zacks Consensus Estimate and management's expectation, it declined from the prior-year quarter due to lower sales, higher operating expenses and an extra operating week in the year-ago period. Higher-than-expected costs due to unanticipated expenses related to its e-commerce business also had an adverse impact on earnings.

Net sales also dipped from the year-ago level and missed the Zacks Consensus Estimate due to a decline in comparable sales and higher sales in the year-ago quarter owing to an extra week. A volatile retail sales environment and lower consumer confidence also resulted in lower traffic.

We are encouraged that the company is trying to expand in the apparels, fashion jewelry/beauty brand and cosmetic categories and aims to increase assortments and expand the number of private and exclusive brands. Kohl's has also been working on improving its merchandising and execution strategies. We believe that they may boost sales in the upcoming quarters.

Earnings Whispers?

Our proven model does not conclusively show that Kohl's is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:The Expected Surprise Prediction or ESP for Kohl's is 0.00% as both the Zacks Consensus Estimate and the Most Accurate estimate stand at 63 cents per share.

Zacks Rank #3 (Hold):Kohl's Zacks Rank #3 when combined with an ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Other stocks in the retail sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Foot Locker Inc FL, with an Earnings ESP of +1.91% and a Zacks Rank #2 (Buy).

The Kroger Co. KR, with an Earnings ESP of +0.95% and a Zacks Rank #2

Estee Lauder Companies Inc. EL, with an Earnings ESP of +1.82% and a Zacks Rank #3.