Kohl’s Misses On Q3 Earnings, Revenue Estimates

Kohl’s Corporation (KSS – Analyst Report) posted third-quarter fiscal 2014 earnings of 70 cents per share, missing the Zacks Consensus Estimate of 76 cents by 7.9% and prior-year quarter earnings by 14%. On a year-over-year basis, both revenues and earnings dropped as comps and margins declined.

Sales and Margins

Net sales decreased 1.6% from the year-ago level to $4.37 billion due to a decline in comparable sales. Sales also missed the Zacks Consensus Estimate of $4.42 billion by 1.1%. Comps declined 1.8%, comparing unfavorably with a 1.6% fall in the prior-year quarter as well as the prior quarter when comps declined 1.3% year over year. The decline in comps can be attributed to the falling footfalls resulting from the volatile retail sales environment and lower consumer confidence.

The company stated that third-quarter revenues were impacted mainly by sluggish sales in October.

In spite of lower cost of merchandise sold, gross margin shrank 30 basis points (bps) to 37.2% due to lower revenues. Operating margins shrank 130 bps to 6.9% due to higher selling, general and administrative expenses.

Store Update

As of Nov 1, 2014, Kohl’s operated 1,163 stores in 49 states compared with 1,158 stores in the prior-year period. The company opened three stores and reopened one which had been closed in the first quarter.

Other Financial Details

As of Nov 1, 2014, Kohl’s held $631 million of cash and cash equivalents compared with $745 million as of Aug 2, 2014. The company ended the quarter with long-term debt of $2.79 billion, flat sequentially.

Guidance

Based on the sales result so far this fiscal year, Kohl’s expects fiscal 2014 earnings per share to be at the lower end of the prior guidance of $4.05–$4.45. The company has lowered its earnings outlook during its investor conference call held in Oct 2014

Kohl’s carries a Zacks Rank #3 (Hold). Other stocks in the sector worth considering include Dollar Tree Inc. (DLTR – Analyst Report), Ross Stores Inc. (ROST- Analyst Report) and L Brands Inc. (LB – Analyst Report). All these stock carry a Zacks Rank #2 (Buy).