Kohl's Delivers The Goods But Fails To Inspire

Kohl's fourth quarter and full year earnings satisfy expectations, but fails to inspire Wall Street due to stiff competition from Macy's and J.C. Penney.

Mar 2, 2014 at 9:25AM

It's no secret that U.S. retailers, particularly department stores, have become increasingly competitive in recent years. Not only are retailers being forced to discount their inventories more than ever, but many consumers have stopped shopping at once-popular store brands altogether. It is no surprise to Foolish readers that Macy's (NYSE:M) has continued to gain traction in the department-store space. The retailer has also started stealing longtime customers from stores like J.C. Penney (NYSE:JCP) and Sears Holdings (NASDAQ:SHLD).

Another retailer that has long succeeded where others like J.C. Penney have failed is Kohl's (NYSE:KSS) who reported fourth quarter and full year earnings for 2013 at market open on Thursday, Feb. 27. Kohl's has long held promotions to attract customers and had its competitive position solidified by other major retailers' continued discounting. While Kohl's beat earnings by a penny in the fourth quarter, sending its stock up 2.2% by late morning trading, its results are nothing to brag about.

Going into earnings week
Before its earnings release, Kohl's had already stated that its sales in the months of November and December increased by 0.8%while January sales were down by more than expected. According to the company, sales were affected by declines in consumer traffic along with a reduced amount of clearance items. Furthermore, Kohl's incurred more operating costs than expected on account of its online retail business, which led them to lower their earnings guidance for the fiscal year 2013.  Originally, Kohl's anticipated earnings of between $1.59 and $1.74 per share for the quarter, but lowered this guidance at the beginning of February to $1.53 per share whereas analysts estimated an EPS of $1.55 per share at best. In addition, Kohl's lowered its full-year earnings-per-share guidance to $4.03 from previous guidance of between $4.08 and $4.23 per share. Kohl's also made known to the public ahead of its earnings release that comparable sales declined by 2% in the fourth quarter, mostly due to weak sales in January. Despite Kohl's CEO and his senior management team announcing that they were "pleased" with their fourth quarter and full year earnings, the results overall were good but not great.

Fourth quarter and full year performance

Luckily for investors, Kohl's beat earnings by one penny, earning $1.56 per diluted share. Unfortunately, EPS for the department store retailer dropped by ten cents from the fourth quarter in 2012. That being said, Kohl's did beat estimates by a penny per share for the quarter which is likely the key takeaway from the release aside from boosting gross margin by 0.7% to 34% from 33.3% in the fourth quarter of FY 2012. As expected, revenue declined 3.8% to $6.099 billion in the quarter along with a fall of 11.6% in net income from $378 million to $334 million. As noted by the company ahead of earnings week, comparable sales did decline in the fourth quarter by 2%, which compares with a 1.9% increase in the same quarter a year prior. 

For the fiscal year 2013, net sales and net income also declined from the previous year. For instance, net sales dropped 1.3% from $19.279 billion in 2012 to $19.031 billion for 2013 while net income fell by 9.8% to $889 million for the year. To the company's dismay, comparable sales were down 1.2% for the year despite being up 0.3% the previous year. Thankfully, Kohl's full year earnings reached $4.05 a share, beating their latest guidance by two cents. While this was positive news for investors, the company's full year earnings fell 3% from a year ago when earnings totaled $4.17 a share. All in all, Kohl's reported a pretty solid performance despite a few shortfalls. 

Stacking up among its competitors
Kohl's along with other department store retailers such as Macy's, J.C. Penney, and Sears Holdings announced fourth quarter and full year earnings this week with Macy's posting the best results. Regardless, all of these retailers saw their share prices rise in response to their respective earnings releases as investors breathed with a sigh of relief that all were moving in the right direction, though, at different paces. Here's how the four retailers stacked up:

Company Name

4th Quarter Y oY Comp. Sales Growth

4th Quarter EPS 2013

YoY EPS growth

J.C. Penney

2%

$(0.68)

(52.7)%

Kohl's

(2.0)%

$1.56

(3.0)%

Macy's

2.3%

$2.31

15.6%

As detailed in the chart above, Macy's continues to dominate the retail space generating strong results in the face of a tough retail environment. J.C. Penney and Kohl's did relatively well but are not doing so on five years of strong results as is the case with Macy's. J.C. Penney itself may not be filing bankruptcy anytime soon, but its results, while an improvement, are nothing to get excited about. Kohl's continues to operate as it always has – offering quality products to the middle class via promotions and coupons. It seems that as its competitors begin discounting more readily, Kohl's may face trouble going forward.

Foolish takeaway

Foolish investors would be wise to hold off on investing in Kohl's. The company has competed against other national clothing retailers relatively well thanks to its competitive pricing structure but as more and more of its competitors discount, the main advantage held by Kohl's for years – loyal customers thanks to the companies generous promotions - may be eroding. No one said retail was easy and Kohl's needs to go on offense to fight off its stiff competition.

To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.




Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers