On Friday, TD Cowen adjusted its stance on Kohl's (NYSE:KSS), downgrading the stock from Buy to Hold and lowering the price target to $21 from $25.
The change comes as the company faces ongoing difficulties in its core apparel and footwear segments, which comprise approximately 70% of its product mix. The analyst noted that comparable sales have remained negative for the past 10 quarters, a significant factor in the downgrade.
Kohl's has attempted to navigate these challenges by introducing initiatives in new and underpenetrated categories. However, the company's recent guide raise was primarily attributed to credit card revenues, as comp guidance was lowered.
The analyst suggested that the valuation at 10 times earnings appears fair and indicated that the stock might be rangebound until clearer visibility on sustainable growth.
The company's core categories of apparel and footwear, which account for 68% of its mix, continue to face headwinds. Middle-income consumer pressure is also ongoing, potentially affecting shopping basket sizes and promotional activity in the year's second half. These factors are expected to continue impacting Kohl's performance.
Kohl's management closely examines these challenging categories, implying that solutions may take time. Despite these issues, the analyst acknowledged Kohl's CEO's proactive approach, which involves actively engaging with secondary markets to source merchandise.
This strategy will eventually provide more trend-appropriate offerings, especially in the juniors' category, estimated to be less than 10% of the company's product mix.
In other recent news, Kohl's Corporation (NYSE:KSS) has reported an increase in Q2 2024 earnings by 13% despite declining sales. The company exceeded profit expectations in its second-quarter earnings report due to effective inventory and cost management. However, Kohl's experienced a 5.1% decline in same-store sales, steeper than anticipated.
In response to these developments, Baird adjusted its outlook on Kohl's shares, reducing the price target to $25 from $27, while maintaining an Outperform rating. On the other hand, JPMorgan downgraded Kohl's stock from Neutral to Underweight, setting a price target of $19.00.
Despite the challenging retail environment, Kohl's management has raised its full-year earnings guidance for 2024, excluding potential impacts from any Consumer Financial Protection Bureau ruling. The company also revised its full-year 2024 EPS outlook to $1.75-$2.25, exceeding the previous guidance of $1.25-$1.85.
Furthermore, the company expects a 2% to 3% reduction in selling, general, and administrative expenses and a year-over-year gross margin expansion of 40-50 basis points.
Lastly, Kohl's is adapting its marketing strategies to improve customer experience, with initiatives including partnerships with Babies "R" Us and expansion of key growth areas.
Despite facing headwinds from inflation and high interest rates, the company remains optimistic about its long-term success, which is driven by these strategic initiatives.
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