What happened

Shares of department store chain Kohl's (KSS -0.13%) went on sale Thursday -- crashing 13.6% through 10:20 a.m. EDT -- after analysts at Bank of America torpedoed the stock with the dreaded double downgrade.

Spinning on a dime, BofA dropped Kohl's stock all the way from buy to underperform (i.e. sell) and slashed its price target from $75 a share to just $48, as StreetInsider.com confirmed today.

Big red arrow going down over a stock chart

Image source: Getty Images.

So what

Why did BofA turn against Kohl's this morning? Turns out, this is a tale of supply chains...and double-edged swords.

On the one hand, BofA compliments Kohl's for having "more than doubled" its "penetration" of the market for activewear. In Q2, notes the analyst, sales of clothing and shoes for active sports and outdoors jumped 40% year over year, now representing 24% of total sales at Kohl's.

That sounds good, but the analyst warns that as Kohl's continues to aggressively grow this segment, it's become vulnerable to "supply chain issues" at key suppliers such as Nike, Under Armour, and Adidas that could prevent the store selling as much as it would like to.

Now what

This situation isn't a surprise to Kohl's, and BofA admits that "the company is actively working to secure inventory to address the situation," especially in women's wear, where "inventory receipt delays" seem especially acute. Problem is, "conditions have gotten worse, not better since" Kohl's informed investors of the problems in its Q2 earnings call.

In BofA's opinion, "this puts the high end of F2021 guidance at risk." In fact, the banker now believes that Kohl's could end up missing earnings this year (projected to be $6.07 per share) and miss fiscal 2022 earnings by as much as 10%. Seeing as next year's earnings were already expected to be down at $5.98 a share, that works out to a miss of as much as $0.60 per share.    

No wonder investors are nervous.