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Kohl's Delivers a Strong Finish to the Fiscal Fourth Quarter

By John Ballard - Mar 3, 2020 at 10:57AM

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Strong traffic trends in January made up for the weak sales performance during the holidays.

Kohl's (KSS -2.47%) announced better-than-expected earnings on Tuesday for the fiscal fourth quarter. While comparable store sales were flat, investors were pleased to see a big beat in profits, which pushed the shares up 3% Tuesday morning. 

Net sales were $6.83 billion, which beat the consensus analyst estimate of $6.52 billion, while non-GAAP (adjusted) earnings came in at $1.99, beating estimates by $0.11.

A few people strolling past a Kohl's store.

Image source: Kohl's. 

Traffic improving

When Kohl's announced its holiday sales results in January, management cited momentum in the digital business, activewear, beauty, children's, footwear, and men's categories. However, softness in women's, which is Kohl's largest business line, was the main culprit for a decrease in comps of 0.2% in November and December.

It's getting tough for traditional retailers to increase shares of consumer discretionary spending. Kohl's has been gradually de-emphasizing proprietary brands in favor of "national" brands, like Adidas and Champion in activewear, to boost traffic. CEO Michelle Gass credited this strategy for accelerating traffic trends toward the end of the quarter, which ended Feb. 1.

"We are encouraged by the acceleration of traffic and new customer acquisition in our stores and online driven by the unprecedented level of new brands and partnerships we launched during the year," Gass said. 

Still work to do

There's nothing new with management's early outlook for fiscal 2020. Comp sales growth is expected to be anywhere from down 1% to up 1%. Gross margin is expected to decline by 10 to 20 basis points. Kohl's previously cited aggressive pricing to combat competition for its lower gross margin in the third quarter. 

The stock is bouncing higher partly because it had fallen so sharply in recent months. But the guidance for 2020 shows Kohl's is still not out of the woods yet.

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