Kohl's (KSS) Stock Down on Weak Comps & Escalated SG&A Costs

Kohl's Corporation KSS is in hot waters, which has led to its unimpressive run on the bourses. This Zacks Rank #4 (Sell) stock has lost almost 22% on a year-to-date basis compared with the industry’s decline of 29.1%. The decline can be accountable to escalated expenses and soft comparable store sales (comps) witnessed in the last few quarters.

Let’s take a closer look at the factors acting as boulders in Kohl’s path.

What’s Affecting Kohl’s Performance?

Kohl’s comps declined for two straight quarters now, including second-quarter fiscal 2019. During the quarter, both top and bottom lines declined year on year. Moreover, revenues missed the Zacks Consensus Estimate. Additionally, comps dipped 2.9% against growth of 3.1% recorded in the year-ago quarter. Weak comps primarily stemmed from unfavorable weather conditions, which hampered demand for spring season goods.  Management expects comps to be flat to slightly down in fiscal 2019.

This apart, Kohl’s has been witnessing rising selling, general and administrative (SG&A) expenses for a while now. In the second quarter of fiscal 2019, SG&A expenses as a percentage of sales expanded 80 bps to 28.6%, due to increased marketing and IT expenses. Further, operating income came in at $376 million, down from the prior-year quarter’s figure of $452 million.

For fiscal 2019, management expects SG&A expenses to increase 1.5-2%, due to higher spending associated with payroll, technology and the Amazon returns program. Further, the raised tariffs on merchandise sourced from China are a concern. Higher tariffs combined with increased costs related to brand investments are likely to dent gross margin by 35-45 bps in fiscal 2019.

Notably, during the second quarter, gross margin was hit by increased shipping costs as well as adjustments made with respect to pricing and promotions. Gross margin slid nearly 70 basis points to 38.8% in the quarter. Clearly, these downsides have been hurting investors’ sentiment.

Nevertheless, the company is undertaking aggressive pricing and promotional actions to counter these cost-related woes and address the competition. However, these efforts are yet to yield positive results for the company. Until then, investors can count on other better-ranked retail stocks, which appear promising.

Looking for Retail Stocks? Check These

Target TGT, with a Zacks Rank #2 (Buy), has a long-term earnings per share growth rate of 7.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Burlington Stores BURL, also with a Zacks Rank #2, has a long-term earnings per share growth rate of 15.9%.

Tuesday Morning TUES, with a Zacks Rank #2, has an impressive earnings surprise record.

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