UPDATE: Deutsche Bank Reiterates Hold Rating, Raises PT on Kohl's Corporation on FY13 Earnings Forecast

In a report published Friday, Deutsche Bank reiterated its Hold rating on Kohl's Corporation KSS, and raised its price target from $40.00 to $42.00. Deutsche Bank noted, “We found Kohl's FY13 earnings forecast for EPS of $4.15-$4.45 a bit surprising. While the mid-point of the range ($4.30) was roughly in-line with our view that the company would guide ~$0.20-$0.25 below the Street (at $4.49 prior to reporting), the composition of margin guidance was materially different than our forecasts. Specifically, on GPM, the company expects expansion of 15-30 bps in FY13 including flat to +20 bps in 1Q (following 5 consecutive quarters of declines). We, on the other hand, believe GPM declines could continue given (a) clearance related to cold-weather/seasonal items still on the selling floor during our February store checks, (b) substantially heavier inventory levels YOY (up 17.2% at YE and up 6.0% YOY on comparable per store basis) than comp trends (guidance for 0.0%-2.0%) in the Spring/Summer given the 6-9 month lag time for placing orders (product was ordered when sales expectations were higher), and (c) a need for the company to invest further in price and promotion given the flat to down traffic experienced throughout 2012. With these risks still remaining, in our view, we are modeling 42 and 16 bps of GPM compression in 1Q13 and FY13, resp.” Kohl's Corporation closed on Thursday at $46.10.