Despite reporting better-than expected earnings on Monday, shares of Kohl’s Corp. (KSS, Financial) fell 3% on Tuesday. The general consensus was that it would be a beat-and-raise quarter. That is exactly what the department store produced, yet, for some investors, it wasn’t good enough.
The company earned $1.76 a share on revenue of $4.57 billion, compared with analysts’ expectations of $1.64 on revenue of $4.27 billion.
Comparable sales increased 4.3% for the three-month period ending Aug. 4. Net income increased 40% to $292 million, compared with $208 million for the same period last year.
Kohl's increased its guidance for the full year to $5.15 to $5.55, compared with its prior forecast of $5.05 to $5.50. The consensus expectation was $5.39.
Prior to dropping, Kohl’s shares were trading close to its three-year highs. The stock had already seen a 45% hike this year. Macy's (M, Financial) stock has increased over 47% for the year and 84% for the same period the previous year. Both companies have outpaced the overall market during the same period of time.
Given this rebound, Kohl’s may have found itself in the same situation as Macy's, namely that given the significant year-to-date rise in their share prices, investors expected, however unreasonably, that results would far exceed the Street consensus.
Although both retailers exceeded analysts’ expectations, the stock of both companies dropped, but the market punished Macy's more severely than Kohl's. The former dropped 16% while the latter saw a modest 3% decline.
After taking a pounding for the past several years, the stock of both companies, after being left for dead, have benefited from the surge in the retail sector this year, belying those analysts who believed the implacable rise of Amazon (AMZN, Financial) would be a death warrant for all department stores.
The 3% drop in Kohl's shares reflect continuing ambivalence about the long-term viability of department stores as some investors still aren’t convinced — better-than-expected earnings results notwithstanding —that the brick-and-mortar stores can stave off or successfully compete against the online giant.
Yet, Kohl's same-store sales increased for both its physical stores as well as online, with a respectable increase in digital sales of approximately 15%. The notable growth in online sales is remarkable considering that up until recently, they were an afterthought for many retail companies.
Kohl's, like Walmart (WMT, Financial) and Macy’s, has adopted the “if you can’t beat 'em, join 'em” approach to retail, incorporating the online experience within the overall purchasing experience for its customers. Kohl’s partnered with Amazon last year to allow customers to return items they purchased from the e-commerce giant at a limited number of its stores. The program has been successful and has now been expanded to 100 additional stores.
Brick-and-mortar retailers have all benefited from continuing strong consumer spending as well as a robust economy. Companies such as Home Depot (HD, Financial) and Walmart have each reported better-than-expected quarterly results.
It is becoming increasingly clear, as the unwarranted drop in the share price of many department stores indicates, that some investors are never going to accept the reality that online purchases and in-store shopping are not mutually exclusive.
All indications are that Kohl’s will be able to sustain its standing in the retailing sector despite Amazon’s oversized presence.
Disclosure: I have no positions in any of the securities referenced in this article.
