Looking at Kohl's (NYSE: KSS ) these days, I'm reminded of the character in the film Monty Python and the Holy Grail, who when asked, "What's your favorite color?" answers indecisively and is promptly hurled into the abyss. On the one hand, the company has put out two recent press releases extolling its environmental initiatives, while on the other hand, same-store sales have been going into the tank. I call it a case of going green and red at the same time.
The green
Kohl's received the 2007 EPA Green Power Leadership Award and has said it's pursuing LEED (Leadership in Energy and Environmental Design) certification for every new store it opens starting in 2008. Quite a leap forward for a company not renowned for environmental stewardship.
A LEED certification is the real deal. There are only 25 stores for all retailers nationwide that have earned the distinction, which covers everything from low-flow toilets to the use of recycled building materials. A Green Power Leadership Award recognizes companies for purchasing green power kilowatt hours -- Kohl's buys more than 200 million each year.
Retailers like Wal-Mart (NYSE: WMT ) , Costco (Nasdaq: COST ) , Target (NYSE: TGT ) , Home Depot (NYSE: HD ) , and Lowe's (NYSE: LOW ) have found green to be a hot new shade and have been roaming green pastures in droves recently. Not only is it good public relations for large companies that need all the goodwill they can get, but I also sense a real and growing commitment among these firms to do the right thing for the communities they serve.
The red
Yesterday, Kohl's announced that October same-store sales were down 3.8%, making for a comps decline of 2.6% for the third quarter. This is the beginning of an ugly trend, made worse by the fact that last month, the company indicated October sales would benefit from a calendar shift.
The sales shortfall caused the company to slash its third-quarter earnings-per-share forecast to a new range of $0.59 to $0.60, compared with the $0.67 Wall Street was expecting. That's a big reduction, and would put Kohl's 11% to 13% below last year. Soft sales during the holidays can also mean inventory problems for retailers, with even more markdowns to come.
So what's a Foolish investor to make of this? I like retailers adding green to their palette, but not at the expense of sales and profitability. So far this year I've discounted Kohl's stumbles, focusing instead on the longer-term outlook -- including the potential for double-digit growth and a laser-like focus on the customer. But after three months of negative comps, I'm thinking there may be deeper issues with the company. I recommend caution until we see how deep the abyss really is.
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