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Why Kohl's Stock Dropped 5% Today

By Rich Smith - Aug 20, 2019 at 12:39PM

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Lower earnings beat expectations, but down is still down.

What happened

Today brings good news and bad news -- but mostly bad news -- for Kohl's (KSS -2.85%) stock shoppers. The stock is down 5.3% in noonday trading (EDT) after investors took a look at Q2 earnings results released this morning and declared them "mixed."  

On the plus side, Kohl's beat estimates for the quarter, reporting profits of $1.51 per diluted share and pro forma profits of $1.55. (Analysts were looking for only $1.53). Sales likewise exceeded expectations, coming in at $4.4 billion where analysts had been looking for only $4.2 billion.  

Red arrow crashes into the floor

Image source: Getty Images.

So what

But that's the end of the good news.

Although sales and earnings both beat expectations, they were also both down from Q2 2018 results. Sales dropped 3% year over year, as did same-store sales, while earnings under generally accepted accounting principles (GAAP) declined by a much steeper 14%. (Pro forma, Kohl's says earnings declined only 12%).

Gross margins declined 72 basis points year over year, but net profit margins were down closer to a full percentage point -- 5.4%.

Now what

That said, Kohl's remains confident that the rest of this year will show improvement. Better same-store sales than in Q1 is a trend that "has continued into August driven by a successful start to the back-to-school season," said CEO Michelle Gass. Problem is, that's not the only trend that will continue.

Management stuck with its guidance for adjusted earnings of $5.15 to $5.45 this year. On the one hand, that would be significantly better than the $5.23 per share that Wall Street is looking for. On the other hand, it would be another decline from the $5.60 per share Kohl's reported for fiscal 2018.

Just as we saw in Q2, Kohl's looks likely to claim an earnings beat for the full year -- even as its earnings shrink. You can hardly blame investors for being unhappy with that.

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