What happened

Shares of Kohl's Corporation (NYSE:KSS) were sliding today even as the retailer posted strong results in its fourth-quarter earnings report. The stock was up in pre-market trading, but the market seemed to be disappointed with the company's guidance for 2018. By 10:54 a.m. EST, the stock was down 7.3%.

The exterior of a Kohl's store

Image source: Kohl's.

So what 

Investors had already expected a strong quarter as Kohl's posted blowout holiday season numbers, with comparable sales up 7%, and raised its guidance. For the full quarter, which included an extra week, the company's comparable-store sales were up 6.3%, and overall revenue increased 9.2% to $6.78 billion, beating estimates at $6.74 billion. Gross margin ticked up 43 basis points to 33.8% as merchandise margins improved as the company cut inventory and scaled back markdowns. Adjusted earnings per share excluding the effect of tax reform came in at $1.87, up from $1.44 a year ago and ahead of expectations at $1.77.

CEO Kevin Mansell said he was "very pleased" with the results in the quarter, and said that all areas effectively managed their expenses, which, combined with higher sales led to strong profit growth. Kohl's also raised its quarterly dividend 11% to $0.61, good for a dividend yield of 4%.

Now what

The sell-off was surprising, but the market may have been expecting stronger guidance for 2018. Management projected comparable sales to come in flat or grow by up to 2%, indicating a slowdown from the fourth quarter; the midpoint of that range is down from 1.5% in 2017. Guidance for total revenue growth of negative 1% to 1% was in line with analyst expectations, and seems to reflect a handful of store closures. 

Due to the new tax law, the company sees earnings per share jumping to $4.95 to $5.45 this year, up from $4.19 last year. At those numbers, Kohl's looks like a solid bet after today's mysterious sell-off.

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