Better Weather May Have Helped Kohl's In Q2

Jefferies’ Daniel Binder mentioned that while the department store industries continues to be under pressure, various data sets and checks suggest that Kohl's Corporation KSS is faring better than in Q1 due to better weather.

Binder maintained a Buy rating on the company, with a price target of $47.

Q2 Better Than Q1

“Mgmt's focus on new brands, private label relaunches, inventory reduction and faster lead times should yield better results as the year progresses,” the analyst stated.

While the same-store sales estimate is ahead of the consensus expectations, the EPS estimate is in line with the consensus, with the analyst expecting incremental promotions year-on-year to offset better inventory management.

The Weather Is Helping

Binder noted that helped by the favorable weather in Q2, there has been a sequential comp improvement from Q1 of 3-4 points.

“In addition to weather benefits, KSS put plans in place to improve marketing effectiveness versus Q1, which included a shift back to more circular and direct mail investments,” according to the Jefferies report.

The analyst expects earlier brand launches and re-launches to also have contributed, and pointed out that management is committed to reducing inventory during 2016 and 2017.

“As this is done more thoughtfully and stores are merchandised locally, we should see reduced markdowns at end of season, which should translate to better gross margin. Some of this progress will offset natural headwinds from increased eCommerce penetration,” Binder added.

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