Kohls Corp (NYSE:KSS)  reported earnings Wednesday before the bell, beating estimates for EPS but missing revenue estimates by $120 million.

Executives at the company said that consumers were exhibiting more “discretion,” specifically middle-class customers who have gotten pickier with their spending, according to an analyst note from Matthew Boss at JPMorgan.

The company reported an EPS for the quarter of 59 cents, 15 cents higher than the estimates of 34 cents. Revenue came in at $3.53 billion, $120 million less than expectations.

The JPMorgan note stated that the core apparel and footwear business of Kohl’s is “eroding,” but the Sephora segment saw strong growth. The analysts at JPMorgan downgraded the stock from Neutral to Underweight, with a price target of $19 a share.

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Kohl's management acknowledged the soft sales in its core apparel business, blaming the weak spending on inflation and interest rates. The management also cited the uncertainty of the upcoming presidential election as a potential factor causing customers to be more careful with spending.

"We are seeing the clearest evidence of this in the performance of our core apparel and footwear offering, which experienced broad softness in the quarter," management said on the call.

JPMorgan's note highlighted different “traffic initiatives” such as Babies ‘R Us, the company's baby apparel brand. Babies ‘R Us and Sephora were two of the growth drivers during the quarter while footwear and apparel sales lagged behind.

KSS Price Action: Kohl’s shares traded higher initially following the company's EPS beat, but the stock sold off Wednesday midday and ended closing down around 5%. On Thursday, shares rebounded slightly, up only 0.66% closing at $19.77.

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