Kohl's has investors buying in to its progress
In the battle for cost-conscious consumers, it's looking more attractive to Wall Street than giant competitor Wal-Mart.
Although both companies were hurt by unusually cool spring weather, Wal-Mart's latest quarterly earnings report disappointed Wall Street while Kohl's beat analysts' expectations, despite having what CEO Kevin Mansell described as a "slow start."
Under Mansell's leadership, the retailer has sought to "reenergize" its brand through increased advertising while at the same time improving its inventory management to lessen dependence on markdowns to move merchandise. These efforts seem to be bearing fruit.
First-quarter net income at Kohl's was $147 million, or 66 cents a share, versus $154 million, or 63 cents a share, a year earlier, far exceeding the 57 cents a share analysts had forecast. Sales fell 1% to $4.2 billion, which was below the $4.26 billion analysts had expected.
Investors overlooked this miss because of Kohl's bullish earnings guidance. Profit in the current quarter will be $1 to $1.08 per share, while revenue will increase from 1% to 3%. Wall Street’s consensus is for profit of $1.05, with sales projected to increase 2.6%. Same-store sales in the quarter, which includes the start of the back-to-school season, will rise 2%.
Investors also took note of Mansell's statement that gross margins were better than expected. That's impressive given that Kohl's ended the quarter with 1,155 stores in 49 states, 21 more than it had a year earlier. The company opened nine new stores during the last quarter and expects to open three more and remodel 30 in the fall. Investment in e-commerce also is paying off as online sales surged 31% in the latest quarter.
With a price-to-earnings multiple of 12.44, Kohl's trades at a discount to its peers such as Wal-Mart (15.58), Target (TGT, 15.46) and TJX (TJX, 19.96). Kohl's P/E is under the five-year high of 15.84, and its dividend offers a fat yield of 2.9%, which also exceeds its rivals' payouts.
Kohl's shares are trading ahead of their 52-week price target of $48.95, which is hardly a shock given the stock's recent run-up. But with the company's attractive valuation and sound management, Kohl's is still worth adding to portfolios.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr
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