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Kohl's EPS Beats, Revs In Line

KSS TJX

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Kohl’s Corporation's (KSS - Analyst Report) adjusted earnings of 91 cents per share in the third quarter of 2012 beat the Zacks Consensus Estimate of 87 cents by 4.6%. Earnings exceeded the prior-year quarter earnings by 14% owing to growth in revenues and comparable store sales. The results also exceeded management’s guidance range of 83 cents to 89 cents.

Sales and Margins

Net sales climbed 2.6% from the prior-year quarter to $4.5 billion in the quarter driven by increase in comparable store sales. The company results were in line with the Zacks Consensus Estimate. Sales growth was at the higher end of the top-line growth guidance range of 1%–3%.

Kohl’s comparable store sales increased 1.1% from the prior-year quarter. It was within the guidance of growth in the range of flat to 2%. Sales picked up in the quarter, driven by an improvement in inventory levels.

Gross margin declined 50 basis points to 38.1% due to increased cost of merchandise. Operating margin was flat at 9.5%.

Store Update

Kohl’s ended the quarter with 1,146 stores in 49 states, compared with 1,127 stores a year ago. Kohl's opened 21 new stores, including 1 relocated store, closed 1 store and completed 50 remodels, as of October 27, 2012.

Other Financial Details

On November 7, Kohl's board declared a quarterly cash dividend of 32 cents per share, to be paid on December 26, 2012 to shareholders of record as of December 5, 2012.

Kohl's board also increased the company's share repurchase authorization by $3.2 billion, under its existing share repurchase program.

Guidance

Kohl’s provided its outlook for the fourth quarter of fiscal 2012. Earnings are expected in the range of $2.00 to $2.08 per share. Sales are expected to grow 7% to 8%, while comparable store sales are anticipated to increase 3% to 4% in the fourth quarter of fiscal 2012. Kohl’s also expects to buy back shares worth $300 million in the quarter.

For fiscal 2012, the company tightened its previously provided earnings guidance of $4.50 to $4.65 per share to a range of $4.52 to $4.60 per share.

Our Recommendation

Kohl's competes with The TJX Companies, Inc. (TJX - Analyst Report). Currently, we have a Neutral recommendation on Kohl's Corporation. The stock carries a Zacks #3 Rank (a short-term Hold rating).

We are encouraged by the company’s prudent expense management across many of Kohl’s stores. A strong balance sheet coupled with strong cash balance and attractive dividend yield makes the stock attractive. However, we remain concerned about the rising commodity costs, increased volatility in the financial markets and overall uncertainty in the macroeconomic environment.

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