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Kohl's (KSS) Q1 Earnings Beat Estimates, Revenues Drop Y/Y

Kohl's Corporation KSS posted solid first-quarter fiscal 2023 results as both the top and bottom lines came ahead of the Zacks Consensus Estimate and the latter improved year over year.

Kohl’s saw an expansion in margins and a 6% decline in inventory. The store business witnessed productivity gains, with Sephora at Kohl’s continuing the sales momentum. Total beauty sales grew 150% in the first quarter.      

The company is making progress toward all of its 2023 key priorities, which include improving customer experience, simplifying value strategies, undertaking disciplined inventory and expenses management and solidifying the balance sheet. With the macroeconomic landscape remaining difficult, management reaffirmed its guidance for the full-year 2023.

Kohl's Corporation Price, Consensus and EPS Surprise

Kohl's Corporation price-consensus-eps-surprise-chart | Kohl's Corporation Quote

Quarter in Detail

Kohl's posted earnings of 13 cents per share compared with 11 cents reported in the year-ago period. The bottom line came way ahead of the Zacks Consensus Estimate of a loss of 44 cents.

Total revenues came in at $3,571 million, down from the prior-year quarter’s level of $3,715 million. However, the metric beat the Zacks Consensus Estimate of nearly $3,519 million. Net sales dipped 3.3% year over year to $3,355 million.

Comparable sales or comps decreased by 4.3% compared with our estimate of a decline of 1.6%.

Kohl's gross margin expanded 67 basis points (bps) to 39% in the reported quarter due to lower digital-led shipping costs, reduced freight expenses and simplified value strategies, partly countered by product cost inflation and increased shrink.   

SG&A expenses fell by 4.2% to $1,238 million. As a percentage of total revenues, SG&A expenses declined 13 bps to 34.7%. This resulted from reduced Sephora openings and associated store refreshes (compared with the year-ago period) and overall cost management, partly negated by wage cost headwinds.

The company posted an operating income of $98 million, up 19.5% from $82 million in the year-ago period. The operating income margin rose 55 bps to 2.8%.

Other Financial Details

Kohl’s ended the quarter with cash and cash equivalents of $286 million, long-term debt of $1,637 million and shareholders’ equity of $3,720 million.

In February 2023, the company retired bonds of $164 million. In the full-year 2023, Kohl’s plans to retire bonds worth $111 million, which are maturing in December 2023.

Management expects capital expenditures in the band of $600-$650 million in the full-year 2023 (including the expansion of its Sephora collaboration and store refresh actions).

On May 10, 2023, Kohl’s declared a quarterly cash dividend of 50 cents per share, payable on Jun 21, 2023, to shareholders of record as of Jun 7.

Guidance

Kohl’s reiterated its guidance for the full-year 2023. The company expects net sales to decline 2-4%, which includes the impact of a 53rd week. The operating margin is likely to be about 4%.

Earnings per share (EPS), excluding non-recurring charges, are envisioned in the band of $2.10-$2.70 compared to the adjusted loss of 15 cents reported in fiscal 2022.  

Shares of this Zacks Rank #3 (Hold) company have decreased 32.1% in the past three months compared with the industry’s decline of 25%.

Some Solid Picks

Here we have highlighted three better-ranked stocks.

Kroger KR, a renowned grocery retailer, currently carries a Zacks Rank #2 (Buy). KR has an EPS growth rate of 6% for three to five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Kroger’s current financial-year EPS suggests an increase of 6.6% from the year-ago reported figure. Kroger has a trailing four-quarter negative earnings surprise of 9.8%, on average.

The TJX Companies TJX currently carries a Zacks Rank #2. This off-price retailer has an expected EPS growth rate of 10.5% for three to five years.

The Zacks Consensus Estimate for The TJX Companies’ current financial-year EPS suggests growth of 14.5% from the year-ago reported figure. TJX has a trailing four-quarter earnings surprise of 4.4%, on average.

Fastenal FAST engages in the wholesale distribution of industrial and construction supplies. FAST currently carries a Zacks Rank #2 and has an expected EPS growth rate of 9% for three to five years.

The Zacks Consensus Estimate for Fastenal’s current financial-year EPS suggests growth of 4.8% from the year-ago reported figure. Fastenal has a trailing four-quarter earnings surprise of 3.2%, on average.

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