Business

Kohl's Shares Tumble Despite the Retailer's Strong Sales Beat and Hiked Outlook

Luke Sharrett | Bloomberg | Getty Images
  • Kohl's fiscal first-quarter profit and sales soared past analysts' estimates.
  • CEO Michelle Gass said momentum built throughout the quarter, especially in Kohl's stores.
  • The retailer is lapping a period a year earlier when its stores were forced shut due to the Covid pandemic.

Kohl's shares tumbled Thursday, despite the company reporting fiscal-first quarter profit and sales that exceeded expectations and hiking its full-year forecast.

It hinted at additional costs and supply chain headwinds that it may face in the remainder of 2021, as it bounces back from a falloff in shopper demand a year earlier, but uncertainty abounds. Kohl's stock closed Thursday down about 10%.

The shares followed a similar trend as that of Walmart and Lowe's, which both reported strong earnings results earlier in the week and then their stocks lose momentum throughout the day. Some investors are cautious about how long the fervent demand coming out of the pandemic will last, especially as stimulus checks are spent.

Macy's stock similarly spiked on upbeat results released Tuesday and signs of shoppers returning to stores to splurge on dresses and luggage, but closed the day down.

Kohl's results are also not as strong when compared with those before the Covid pandemic, according to GlobalData Retail Managing Director Neil Saunders.

"Good growth was always inevitable given the terrible results of last year," Saunders said about Kohl's lapping a period when its stores were forced shut during the health crisis. "While the company is on a steep recovery trajectory, it has not fully dug itself out of the hole that the pandemic created."

Here's how Kohl's did for the quarter ended May 1, compared with what analysts were anticipating, based on a Refinitiv survey:

  • Earnings per share: $1.05 adjusted vs. 4 cents expected
  • Revenue: $3.89 billion vs. $3.48 billion expected

Kohl's net income climbed to $14 million, or 9 cents per share, from a loss of $541 million, or $3.52 per share, a year earlier. Excluding one-time adjustments, the company earned $1.05 per share, outpacing expectations for 4 cents in Refinitiv's survey.

Revenue soared nearly 70% to $3.89 billion from $2.43 billion a year earlier. That beat expectations for $3.48 billion.

The company said its store sales more than doubled during the quarter, while digital sales rose 14% year over year, to represent 30% of total sales. It didn't break out same-store sales figures.

Kohl's Chief Executive Michelle Gass said momentum built throughout the quarter, especially in stores, where the retailer has been investing in new private label brands and refreshing displays in activewear, women's apparel and beauty. Activewear sales showed the most significant growth in the first quarter, Gass said, rising at a mid-teens percentage rate from 2019.

"The U.S. consumer is in a stronger position [and] spending has picked up, driven by stimulus, easing Covid-19 restrictions and people resuming more normalcy in their daily lives," Gass said during an earnings call. "These factors are helping to reignite growth for the retail industry and we are positioned extremely well to capitalize on this acceleration."

Kohl's expects full-year adjusted earnings per share to range from $3.80 to $4.20, up from $2.45 to $2.95.

Net sales are estimated to rise in the mid-to-high teens percentage range, compared with a previous expectation of a mid-teens percentage jump.

Analysts had been looking for adjusted earnings of $3.15 per share, with sales rising 19.3% for the year, according to Refinitiv.

Telsey Advisory Group research analyst Dana Telsey estimates that the sales outlook provided from Kohl's would equate to a range of about $17.14 billion to $17.89 billion. That would still be below the $18.89 billion in revenue that the company booked in 2019.

Gass told analysts the company is being more cautious in its outlook because of potential cost headwinds and supply chain disruption that the company could face throughout the year.

Later this fall, Kohl's is preparing to bring the beauty retailer Sephora into about 200 of its stores, growing to 850 locations by 2023. The company hopes the initiative will help it to drive traffic and reach a younger customer. It has simultaneously been growing its roster of national brand partners, including Levi's, Lands' End and Eddie Bauer.

It also said it is preparing to launch another group of private-label brands, following the recent debut of its new active line FLX. Kohl's is on track to grow its active business to represent 30% of total sales in the next few years.

As of market close Thursday, Kohl's shares have risen more than 33% year to date. Kohl's has a market cap of $8.5 billion, which is notably more than Macy's and Nordstrom.

Clarification: A previous version of this story misstated that Target shares had fallen Wednesday after it reported earnings.

Find the earnings press release from Kohl's here.

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