Kohl's Misses on Q1 Earnings, Revs - Analyst Blog

Retailer  Kohl's Corporation KSS posted first-quarter fiscal 2014 earnings of 60 cents per share, missing the Zacks Consensus Estimate of 62 cents by 3.2% and prior-year quarter earnings by 9%.

Earnings dipped due to lower sales and higher operating expenses during the quarter.

Sales and Margins

Net sales decreased 3.1% from the year-ago level to $4.07 billion due to a decline in comparable sales and higher inventory levels caused by lower sales in the previous quarter. Sales also missed the Zacks Consensus Estimate of $4.2 billion. Comps declined 3.4% during the quarter which compared unfavorably with a decline of 1.9% in the prior-year quarter and a 2.0% decline in the prior quarter.

Unfavorable weather in the first three months of calendar 2014 due to ice storms that hit U.S. resulted in frequent shop shutdowns and disrupted usual shopping trends. A volatile retail sales environment and lower consumer confidence lowered traffic. However, the company was able to manage its inventory and merchandise content during the quarter.

Gross margin expanded 40 basis points (bps) to 36.8% due to lower cost of merchandise sold. Operating margin, however, declined 70 bps to 6.9% from the year-ago quarter due to higher operating expenses. Both selling, general & administrative and depreciation expenses increased during the quarter.

Store Update

The company ended the quarter with 1,160 stores in 49 states compared to 1,155 stores in the prior-year period. Kohl's opened four stores, relocated one and closed two during the quarter.

Other Financial Details

During the quarter, Kohl's extended credit card agreement with Capital One for an additional five years until Mar 31, 2023.

Guidance

Kohl's maintained its guidance for fiscal 2014. The company expects earnings in the range of $4.05 to $4.45 per share, sales growth in the range of 0.5–2.5% and comparable store sales growth in the range of 0–2%. The Zacks Consensus Estimate for fiscal 2014 is $4.34 per share, in line with the company's expectation.

Kohl's carries a Zacks Rank #3 (Hold). However, better-ranked stocks in the retail sector include Nordstrom Inc. JWN, Foot Locker, Inc. FL and The Kroger Co. KR. All these stocks have a Zacks Rank #2 (Buy).

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