Will Sluggish Comps Dampen Kohl's (KSS) Earnings In Q1?

Kohl’s Corporation (NYSE:KSS) is set to report first quarter of fiscal 2017 results on May 11 before the market opens. The question lingering in investors’ minds is, whether the departmental store will be able to maintain its positive earnings surprise streak in the to-be-reported quarter. We note that the company has outpaced the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 7.98%.

Kohl’s forms part of the Retail-Wholesale sector. Per the latest Zacks Earnings Preview, we note that the above mentioned sector’s earnings growth looks disappointing. Total earnings for the sector are estimated to fall 2.2% on margin decline of 0.2%, while revenues are projected to improve 3.3%.

Let’s delve deeper how things are shaping up for this announcement.

Which Way Are Estimates Treading?

Let’s look at earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company right before the earnings release. The current Zacks Consensus Estimate for the quarter under review has declined marginally over the past 30 days and is currently pegged at 28 cents, down 9.7% from 31 cents delivered in the year-ago quarter. Analysts polled by Zacks expect revenues of $3.9 billion, down 1.9% from the prior-year period.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Kohl’s is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Kohl’s has an Earnings ESP of +3.57%, which makes us very optimistic about a possible earnings beat. However, it carries a Zacks Rank #4 (Sell). It is to be noted that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Influencing the Quarter

Kohl’s has been struggling to boost its sluggish top line since the past many quarters. Sluggish comps and a difficult retail sales scenario are hurting sales at department stores.

The sluggish trend is also reflected in Kohl’s share prices on a year-to-date basis due to a challenging sales environment and soft comparable store sales. Notably, in the said period the stock declined 12.2% in comparison to the Zacks categorized Retail-Wholesale sector, which showcased growth of 13.2%.

Despite Kohl’s continuous efforts to improve its base business, its strategic initiative, ‘Greatness Agenda’, which was designed to increase transactions per store and sales, is failing to deliver positive results. Though the plan has helped the company to deliver positive comps in all the four quarters of fiscal 2015, the quarterly growth rates moderated gradually, thus posing a concern.

Moreover, comps declined in all the four quarters of fiscal 2016. This is raising concerns over the near term. The company is also witnessing lower spending on apparel and accessories, dwindling store traffic, margin pressure and competition from discount retailers, which are hurting sales at department stores. We believe the trend is not expected to improve in the to-be-reported quarter.

Kohl's Corporation Price, Consensus and EPS Surprise

Kohl's Corporation Price, Consensus and EPS Surprise | Kohl's Corporation Quote

Stocks to Consider

Stocks in the broader retail sector carrying both a positive Earnings ESP and a favorable Zacks Rank, and therefore worth considering include:

The Home Depot Inc. (NYSE:HD) has an Earnings ESP of +0.62% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Wal-Mart Stores, Inc. (NYSE:WMT) has an Earnings ESP of +2.08% and carries a Zacks Rank #2.

Jack In The Box Inc. (NASDAQ:JACK) has an Earnings ESP of +4.40% and carries a Zacks Rank #2.

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