On Tuesday, Evercore ISI adjusted its outlook on Kohl's Corporation (NYSE:KSS), reducing the price target to $14.00 from the previous $18.00, while keeping an In Line rating on the stock. The firm's assessment followed Kohl's reported third-quarter earnings per share (EPS) of $0.20, which included a benefit of approximately $0.05 from a 0% tax rate. This figure fell short of both Evercore ISI's estimated $0.36 and the broader market's expectation of $0.28.
The primary concern highlighted was the significant drop in same-store sales (SSS), which declined by 9.3%, underperforming Evercore ISI's and the market's forecast of a 5.0% and 5.3% decrease, respectively. Despite the overall downturn, gross margin (GM) showed resilience, increasing by 20 basis points year-over-year, even though the company's high-margin private label business saw a 20% decline from the previous year.
The analyst noted that the performance of Kohl's Sephora outlets was a positive, with same-store sales up 9% year-over-year. However, the productivity of new Sephora shops saw a significant slowdown compared to the second quarter. Excluding Sephora, the same-store sales were estimated to have dropped to the low teens percentage, a deceleration of approximately 4 percentage points quarter-over-quarter, indicating a substantial loss of traffic share, particularly during the critical back-to-school season.
The report suggested that while the argument for a bearish position on Kohl's might be challenging, considering factors like real estate and credit portfolio value, the guidance for the fourth quarter did not appear conservative. Furthermore, the analyst projected that Kohl's might need to consider its first large-scale store closure program in 2025. In light of these factors, Evercore ISI maintained its Neutral stance but revised its fiscal year 2024 and 2025 EPS forecasts to $1.37 and $1.50, down from $1.85 and $2.20, respectively.
In other recent news, Kohl's Corporation announced a 9% drop in comparable store sales for the third quarter of the fiscal year 2024 during their earnings call. The company also reported net sales down by 8.8%, a gross margin of 39.1%, and earnings per diluted share at $0.20. Despite these challenges, Kohl's saw a 15% growth in beauty sales through Sephora and plans to expand product lines, including Babies R Us shops and fine jewelry.
InvestingPro Insights
Recent InvestingPro data provides additional context to Kohl's current financial situation. The company's market capitalization stands at $1.68 billion, with a P/E ratio of 5.88, indicating a potentially undervalued stock. This aligns with an InvestingPro Tip suggesting that Kohl's is "trading at a low earnings multiple."
Despite the challenges highlighted in the article, Kohl's maintains a significant dividend yield of 10.91%, which is supported by another InvestingPro Tip noting that the company "pays a significant dividend to shareholders" and "has maintained dividend payments for 14 consecutive years." This could be attractive to income-focused investors, even as the company faces headwinds.
However, reflecting the concerns raised in the analyst report, an InvestingPro Tip warns that "6 analysts have revised their earnings downwards for the upcoming period." This caution is further emphasized by the tip indicating that "analysts anticipate sales decline in the current year."
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Kohl's, providing a broader perspective on the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.