Kohl’s: Zacks’ Bear of the Day Play

Headquartered in Menomonee Falls, WI, Kohl’s Corp (KSSFree Report) operates about 1,100 stores across 49 states and an e-commerce site. Falling estimates sent the stock to a Zacks Rank #5 (Strong Sell).

 Weak Guidance Reflects Rising Challenges

Earlier this month, the retailer reported that their comparable sales decreased 2.1% year-over-year in the months of November and December 2016 combined.

“Sales were volatile throughout the holiday season. Strong sales on Black Friday and during the week before Christmas were offset by softness in early November and December,” said the CEO.

They also cut their FY 2016 earnings guidance to $2.92 to $2.97 per share from $3.12 to $3.32 per share. The stock plunged about 19% after the report.

The guidance reflected rising challenges for the industry that is struggling with dwindling foot traffic at stores and continuing transition to online shopping.

Falling Estimates

Analysts have slashed their estimates for the company after weak guidance.  Zacks Consensus Estimates for the current and next fiscal year have fallen to $3.64 per share and $3.84 per share from $3.93 and $4.21 respectively, before the report.

Kohl’s Corporation Price, Consensus and EPS Surprise

The Bottom Line

In addition to disappointing mall traffic, the retail space is going through a shift toward online shopping. With tightening labor markets, wage pressure has also started hurting retailers. It remains to be seen whether retailers like Kohl’s will be able to reorganize their operations and improve their profitability going forward.

Further, the industry “Retail – Regional Department Stores” is currently ranked 245 out of 265 Zacks industries (bottom 8%), suggesting potential underperformance in the short-to-medium term. There is no Zacks Rank #1 or #2 stock in the industry. It would be better for investors to stay away from this stock and the industry in view of rising challenges.

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