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Kohl's (KSS) Slumps More Than 55% in 6 Months: Here's Why
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Kohl’s Corporation (KSS - Free Report) is grappling with escalated cost inflation, which has been marring its margin performance for a while. The leading omnichannel retailer is battling a sluggish demand environment.These factors persisted in the second quarter of fiscal 2022, with the top and the bottom line declining year over year. In addition, management slashed the overall guidance for fiscal 2022.
Shares of the Zacks Rank #5 (Strong Sell) company slumped 55.3% in the past six months compared with the industry’s 32.2% decline.
Let’s delve deeper.
Dismal Q2 Performance
Kohl's second-quarter fiscal 2022 results were hurt by a tough macroeconomic landscape, increased inflation and sluggish consumer spending. During the quarter, the company saw customers make fewer shopping trips, spend less per transaction and shift toward its value-oriented private brands.
Kohl's adjusted earnings of $1.11 per share plunged 55% from the $2.48 reported in the year-ago period. Profits in the quarter were mainly hurt by softness in sales and gross margin. Higher investments in the company’s strategic growth initiatives of Sephora store openings and store refreshes were also a downside. Total revenues came in at $4,087 million, down 8.1% from the prior-year quarter’s levels. Net sales fell 8.5% year over year to $3,863 million. Comps declined by 7.7%. The downside was caused by reduced store traffic and smaller basket sizes.
Image Source: Zacks Investment Research
Lowered View
During its second-quarter fiscal 2022 earnings release, management slashed the overall guidance for fiscal 2022. Its updated guidance contemplates reduced sales and margin pressure stemming from a more difficult economic backdrop and competitive landscape. The company now expects net sales to decline 5-6%. Earlier, the net sales growth was anticipated to be flat to 1%. The operating margin is likely to be 4.2-4.5% now, down from the previously guided range of 7-7.2%.
Kohl’s envisions earnings per share (EPS) in the range of $2.80-$3.20 (excluding non-recurring charges) compared with the earlier range of $7.45-$7.85 (excluding non-recurring charges). The company posted an adjusted EPS of $7.33 in the full-year 2021.
High Costs a Concern
During the second quarter of fiscal 2022, Kohl's gross margin contracted 290 basis points year over year to 39.6%. Escalated freight expenses, product cost inflation and more promotional activity hurt the margin performance. Management expects the second half gross margin to contract similar to the fiscal second quarter margin, thanks to product cost inflation, a higher promotional environment and escalated freight costs.
The company’s SG&A expenses have been rising year over year for the last few quarters. In the fiscal second quarter, SG&A expenses increased by 3.4% to $1,283 million, mainly due to investments in key strategic initiatives. As a percentage of the total revenues, SG&A expenses expanded 350 basis points to 31.4%. For fiscal 2022, management anticipates SG&A expenses to increase roughly 1.5%.
Final Thoughts
Kohl’s is benefiting from its strategic framework, which focuses on four key areas — driving top-line growth, expanding operating margin, implementing disciplined capital management and undertaking an agile, accountable and inclusive culture. The company is focused on growing its store portfolio along with accelerating digital business growth.
All said, let’s see if these upsides can help Kohl’s counter the aforementioned hurdles.
Eye These Solid Retail Picks
We have highlighted three better-ranked stocks, Dillard's, Inc. (DDS - Free Report) , Kroger (KR - Free Report) and DICK'S Sporting Goods, Inc. (DKS - Free Report) .
The Zacks Consensus Estimate for Dillard's current financial-year sales suggests growth of 4.8% from the year-ago period’s tally.
Kroger, a renowned grocery retailer, currently carries a Zacks Rank #2 (Buy). KR has an expected EPS growth rate of 11.7% for three to five years.
The Zacks Consensus Estimate for Kroger’s current financialyear revenues and EPS suggests growth of 7.8% and 10.3%, respectively, from the year-ago reported figure. KR has a trailing four-quarter earnings surprise of 15.7%, on average.
DICK'S Sporting, which operates as a sporting goods retailer, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of nearly 21.4%, on average.
The Zacks Consensus Estimate for DICK'S Sporting’s current financial year revenues and EPS suggests a decline of 3.2% and 27.3%, respectively, from the year-ago reported figure. DKS has an expected EPS growth rate of 5% for three to five years.
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Kohl's (KSS) Slumps More Than 55% in 6 Months: Here's Why
Kohl’s Corporation (KSS - Free Report) is grappling with escalated cost inflation, which has been marring its margin performance for a while. The leading omnichannel retailer is battling a sluggish demand environment.These factors persisted in the second quarter of fiscal 2022, with the top and the bottom line declining year over year. In addition, management slashed the overall guidance for fiscal 2022.
Shares of the Zacks Rank #5 (Strong Sell) company slumped 55.3% in the past six months compared with the industry’s 32.2% decline.
Let’s delve deeper.
Dismal Q2 Performance
Kohl's second-quarter fiscal 2022 results were hurt by a tough macroeconomic landscape, increased inflation and sluggish consumer spending. During the quarter, the company saw customers make fewer shopping trips, spend less per transaction and shift toward its value-oriented private brands.
Kohl's adjusted earnings of $1.11 per share plunged 55% from the $2.48 reported in the year-ago period. Profits in the quarter were mainly hurt by softness in sales and gross margin. Higher investments in the company’s strategic growth initiatives of Sephora store openings and store refreshes were also a downside. Total revenues came in at $4,087 million, down 8.1% from the prior-year quarter’s levels. Net sales fell 8.5% year over year to $3,863 million. Comps declined by 7.7%. The downside was caused by reduced store traffic and smaller basket sizes.
Image Source: Zacks Investment Research
Lowered View
During its second-quarter fiscal 2022 earnings release, management slashed the overall guidance for fiscal 2022. Its updated guidance contemplates reduced sales and margin pressure stemming from a more difficult economic backdrop and competitive landscape. The company now expects net sales to decline 5-6%. Earlier, the net sales growth was anticipated to be flat to 1%. The operating margin is likely to be 4.2-4.5% now, down from the previously guided range of 7-7.2%.
Kohl’s envisions earnings per share (EPS) in the range of $2.80-$3.20 (excluding non-recurring charges) compared with the earlier range of $7.45-$7.85 (excluding non-recurring charges). The company posted an adjusted EPS of $7.33 in the full-year 2021.
High Costs a Concern
During the second quarter of fiscal 2022, Kohl's gross margin contracted 290 basis points year over year to 39.6%. Escalated freight expenses, product cost inflation and more promotional activity hurt the margin performance. Management expects the second half gross margin to contract similar to the fiscal second quarter margin, thanks to product cost inflation, a higher promotional environment and escalated freight costs.
The company’s SG&A expenses have been rising year over year for the last few quarters. In the fiscal second quarter, SG&A expenses increased by 3.4% to $1,283 million, mainly due to investments in key strategic initiatives. As a percentage of the total revenues, SG&A expenses expanded 350 basis points to 31.4%. For fiscal 2022, management anticipates SG&A expenses to increase roughly 1.5%.
Final Thoughts
Kohl’s is benefiting from its strategic framework, which focuses on four key areas — driving top-line growth, expanding operating margin, implementing disciplined capital management and undertaking an agile, accountable and inclusive culture. The company is focused on growing its store portfolio along with accelerating digital business growth.
All said, let’s see if these upsides can help Kohl’s counter the aforementioned hurdles.
Eye These Solid Retail Picks
We have highlighted three better-ranked stocks, Dillard's, Inc. (DDS - Free Report) , Kroger (KR - Free Report) and DICK'S Sporting Goods, Inc. (DKS - Free Report) .
Dillard's, a retail department stores operator, currently has a Zacks Rank #2 (Buy). DDS has a trailing four-quarter earnings surprise of almost 215%, on average.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Dillard's current financial-year sales suggests growth of 4.8% from the year-ago period’s tally.
Kroger, a renowned grocery retailer, currently carries a Zacks Rank #2 (Buy). KR has an expected EPS growth rate of 11.7% for three to five years.
The Zacks Consensus Estimate for Kroger’s current financialyear revenues and EPS suggests growth of 7.8% and 10.3%, respectively, from the year-ago reported figure. KR has a trailing four-quarter earnings surprise of 15.7%, on average.
DICK'S Sporting, which operates as a sporting goods retailer, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of nearly 21.4%, on average.
The Zacks Consensus Estimate for DICK'S Sporting’s current financial year revenues and EPS suggests a decline of 3.2% and 27.3%, respectively, from the year-ago reported figure. DKS has an expected EPS growth rate of 5% for three to five years.