Kohl’s Catching "the Cold" Should Concern All Retail Investors

Kohl’s weakening outlook is contradictory to prior statements.

Feb 12, 2014 at 1:00PM

When Kohl's (NYSE:KSS) announced its fourth-quarter results had fallen short of expectations, you might have expected the holiday season was to blame. Starbucks (NASDAQ:SBUX) had already warned that foot traffic in the malls had been unusually slow, and the preliminary report from J.C. Penney (NYSE:JCP) also suggested a challenging December. Kohl's holiday season was actually a tad stronger than expected, but there were a few other factors of greater concern.

The Kohl's update
On Feb. 6, Kohl's released its updated guidance for the fiscal fourth quarter. Same-store sales slipped 2% while the holiday months of November and December saw a combined 0.8% lift. In order for the performance average of the quarter from November to January to fall by 2% overall, and considering the biggest months of the year saw a 0.8% climb, January must have been pretty weak.

Kohl's stated, "January sales were significantly lower than planned as a result of lower traffic and low levels of clearance merchandise." The company also blamed its online business for higher-than-expected costs. Kohl's lowered its earnings-per-share guidance to $1.53, down from a range of $1.59 to $1.74.

Starbucks CEO Howard Schultz mentioned that the traditional foot traffic seen during the holidays for the first time gave way to "online in a major way." Perhaps this shift caused Kohl's unexpected online expenses. Starbucks itself ironically saw a 4% increase in foot traffic despite the shift away from the malls. Maybe Kohl's should put some Starbucks kiosks within its stores.

Beat the cold
Interestingly, Kohl's actually seemed to have beaten its expectations for the holiday period. For the quarter, anyway, Kohl's guided for a same-store sales performance of between flat and a decline of 2%. The 0.8% increase during the holiday months is certainly well above this range. Then again, Kohl's was open for 100 straight hours leading up to Christmas, something it has never done before, so that may have nudged same-store sales up just enough into the positive.

What is most concerning about the report for January is that January across the nation is an unusually cold month. For Kohl's, it was thought that seasonal cold meant more sales, not less. During last quarter's conference call, CEO Kevin Mansell said, "On an extremely positive note, the month of October ended the third quarter very strongly, and we significantly exceeded our plan. That strength, further fueled by seasonal weather, has continued into November."

Later, during the Q&A session of the conference call, Mansell said the October and November strength was "all driven by traffic," as "traffic trends just markedly improved." He went on to say that it was fueled in part by the seasonal weather. Maybe the unusually cold weather helps in the fall but hurts in the winter. Perhaps there is such a thing as "too cold," in which case, expect to see many more retailers report poor results due to the cold.

J.C. Penney with the same seemingly conflicting words
The whole "too cold" thing reminds me of J.C. Penney. In November, J.C. Penney saw a 10.1% spike in same-store sales. Chief Executive Mike Ullman in part credited the spike to the seasonally cold weather coming early. Fast-forward to Feb. 4, and Ullman is now mentioning that there are "significant headwinds facing all retailers this season, including unprecedented harsh weather conditions in many parts of the country." Could it be that everybody bought their winter gear from Kohl's, J.C. Penney, etc. early? Or has it gotten too cold (not to mentioned too snowed-in) to even leave the house in some areas? Perhaps it's both.

Foolish final thoughts
The unforeseen drop in same-store sales out of Kohl's in January is concerning. Fools should consider being cautious and wait for further information until we can be sure it's truly a one-month thing and not a sign of other trouble for the retailer. Meanwhile, be mindful that the weather may lead to many calendar first-quarter bad reports from retailers.

Fools tend to be long-term investors, but that doesn't mean you should enter new positions without paying attention to current events. Bad reports due to temporary circumstances like weather can make for fabulous entries. Watch for overreaction sell-offs among various retailers for potentially great long-term bargains.

Here's one way to escape the cold
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers