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Can Kohl's (KSS) Strategic Initiatives Counter the Headwinds?
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Kohl’s Corporation (KSS - Free Report) has been grappling with numerous headwinds since the past many quarters due to difficult sales environment and cautious consumer spending. Change in spending patterns of consumers has also been hurting sales. Demand for clothes and accessories, like watches and handbags have declined as consumers prefer to spend more on home renovations and cars. This has affected the store traffic significantly. Further, competition from discount retailers is hurting sales at department stores. Notably, the U.S. department stores, including Kohl’s, have been struggling to gain market share in the face of increased competition by online rivals, such as Amazon.com Inc. (AMZN - Free Report) .
The sluggish trend is also reflected in Kohl’s share prices for the past three years due to a challenging sales environment and soft comparable store sales. Notably, in the said period, the stock plunged 27.3% in comparison to the Zacks categorized Retail-Wholesale sector, which showcased growth of 14.3%.
Amid these headwinds, sluggish holiday sales led to a cut in Kohl’s profit outlook for fiscal 2016. This Menomonee Falls, WI-based retailer now expects adjusted earnings to be in a range of $3.60–$3.65 per share for fiscal 2016. It had earlier expected earnings in the range of $3.80–$4.00 per diluted share. Estimates have also declined for the past seven days since the announcement of a slash in its outlook.
Further, Kohl’s anticipates gross margin to be lower than planned, due to the mix and timing of sales and the competitive promotional environment. Inventories per store at the end of the fourth quarter are projected to decrease from the prior-year levels in the mid-to-high single digit range.
Kohl’s has been making continuous efforts to improve its base business. The company started its turnaround initiative named “Greatness Agenda” in the first quarter of fiscal 2014, which was designed to increase transactions per store and sales. Though the plan has helped the company to deliver positive comps in all the quarters of fiscal 2015, the quarterly growth rates moderated gradually. Moreover, comps declined in the first three quarters of fiscal 2016. This is further raising concerns for the near term.
Nevertheless, we believe that the concerns are short lived as the company remains optimistic on its initiative to drive sales over the long term, which leaves room for this Zacks Rank #3 (Hold) company to rebound. This is quite evident from its VGM Score of “B” and long-term earnings growth rate of 7.7%.
While Children’s Place has a long term earnings growth of 10.3%, Tilly’s Inc. has a growth rate of 13.0%.
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Can Kohl's (KSS) Strategic Initiatives Counter the Headwinds?
Kohl’s Corporation (KSS - Free Report) has been grappling with numerous headwinds since the past many quarters due to difficult sales environment and cautious consumer spending. Change in spending patterns of consumers has also been hurting sales. Demand for clothes and accessories, like watches and handbags have declined as consumers prefer to spend more on home renovations and cars. This has affected the store traffic significantly. Further, competition from discount retailers is hurting sales at department stores. Notably, the U.S. department stores, including Kohl’s, have been struggling to gain market share in the face of increased competition by online rivals, such as Amazon.com Inc. (AMZN - Free Report) .
The sluggish trend is also reflected in Kohl’s share prices for the past three years due to a challenging sales environment and soft comparable store sales. Notably, in the said period, the stock plunged 27.3% in comparison to the Zacks categorized Retail-Wholesale sector, which showcased growth of 14.3%.
Amid these headwinds, sluggish holiday sales led to a cut in Kohl’s profit outlook for fiscal 2016. This Menomonee Falls, WI-based retailer now expects adjusted earnings to be in a range of $3.60–$3.65 per share for fiscal 2016. It had earlier expected earnings in the range of $3.80–$4.00 per diluted share. Estimates have also declined for the past seven days since the announcement of a slash in its outlook.
Kohl's Corporation EPS Diluted (Quarterly)
Kohl's Corporation EPS Diluted (Quarterly) | Kohl's Corporation Quote
Further, Kohl’s anticipates gross margin to be lower than planned, due to the mix and timing of sales and the competitive promotional environment. Inventories per store at the end of the fourth quarter are projected to decrease from the prior-year levels in the mid-to-high single digit range.
Kohl’s has been making continuous efforts to improve its base business. The company started its turnaround initiative named “Greatness Agenda” in the first quarter of fiscal 2014, which was designed to increase transactions per store and sales. Though the plan has helped the company to deliver positive comps in all the quarters of fiscal 2015, the quarterly growth rates moderated gradually. Moreover, comps declined in the first three quarters of fiscal 2016. This is further raising concerns for the near term.
Nevertheless, we believe that the concerns are short lived as the company remains optimistic on its initiative to drive sales over the long term, which leaves room for this Zacks Rank #3 (Hold) company to rebound. This is quite evident from its VGM Score of “B” and long-term earnings growth rate of 7.7%.
Stocks to Consider
Investors interested in the broader retail space may also consider Tilly’s, Inc. (TLYS - Free Report) and The Children's Place, Inc. (PLCE - Free Report) . Both of them sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
While Children’s Place has a long term earnings growth of 10.3%, Tilly’s Inc. has a growth rate of 13.0%.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >