Kohl’s Corporation (KSS, Financial) recently reported its first-quarter results for fiscal 2015. The company delivered better-than-expected earnings of $0.63 a share, up 5% year-over-year and beating the consensus estimate of $0.57 a share. The company posted a modest 1.3% year-over-year growth in revenues to $4.123 billion for the first quarter of fiscal 2015. However, the figures fell shy of the consensus estimate of $4.182 billion and investors seemed severely disappointed. Following the results, Kohl’s shares tumbled over 13.5% to $64.25 during the day’s trading.
Comparable-store sales, higher margins boost earnings
Kohl’s Corporation’s net income for Q1 2015 climbed to $127 million from $125 million in the year-ago quarter. The company attributed the growth to higher sales and growth in comparable-store sales as well as prudent cost management during the quarter. The retailer also saw gross margin expanding 17 basis points to 36.9% of sales, while operating margin shrunk 10 basis points to 6.8% during the quarter. The company opened two new retail outlets during Q1 2015, ending the quarter with a total of 1,164 stores across 49 states in the U.S.
However, sales for the quarter were hurt by reduced footfalls owing to unusually cold weather in February, while disruptions at West Coast ports and reduced foreign tourist spending in the U.S. also contributed to the drop. Although Kohl’s saw sluggish sales in February 2015, the trend was reversed in the months of March and April with the company benefiting from Easter and Mother’s Day shopping. Comparable-store sales for the quarter increased 1.4% year-over-year on the back of the company’s enduring focus on improving its core business by increasing per-store transactions and traffic. However, comparable-store sales were lower than the consensus estimate of 2.6% as well as the prior-year quarter when the company posted 3.7% year-over-year growth.
During the quarter, Kohl's, which competes with other businesses such as Macy’s Inc. (M, Financial), JC Penney Inc. (JCP, Financial) and The TJX Companies Inc. (TJX, Financial) in the retail department store segment, also announced a quarterly dividend of $0.45 a share, to be paid on June 24 to shareholders on record as of June 10. The company did not provide an update for its full-fiscal 2015 guidance. However, Kohl’s had previously projected FY 2015 earnings to stay in the $4.40 to $4.60 per share range, higher than the FY2014 earnings of $4.24 a share. Consensus estimates peg the company’s earnings towards the higher end of the guidance at $4.56 a share. Kohl’s had also previously projected 1.8% to 2.8% growth in sales for the full fiscal on the back of a 1.5% to 2.5% growth in comparable-store sales.
Final thoughts
Kohl’s Corporation reported better-than-expected earnings for the first quarter of fiscal 2015. However, revenues fell shy of the consensus estimate, an aspect that did not go down well with investors. Consequently, Kohl’s shares tumbled at the market despite posting modest growth in comparable-store sales during the quarter. Experts opine that the stock's multiple is likely to reset lower until Kohl’s can demonstrate a sustainable 2% to 3% growth in same-store sales. While consensus estimates peg the company’s Q2 earnings at a much better $1.25 a share, experts are looking at an average earnings growth rate of 10% for Kohl’s over the next five years, with a peak expected in fiscal 2018. Consequently, the Kohl’s stock currently carries a ‘buy’ guidance and investors might consider stocking up on the shares while it is still trading low.
