Kohl's Corporation (KSS +1.12%) stock imploded Thursday morning -- down 26.3% through 10:15 a.m. ET -- after reporting a big net loss where investors had expected a profit.
Heading into the first quarter, analysts forecast Kohl's would earn $0.04 per share on sales of $3.3 billion. Both predictions represented declines from Kohl's Q1 2023 report, but the news was even worse than expected. Kohl's didn't earn any profit at all but lost $0.24 per share. Its sales were only $3.2 billion.
NYSE: KSS
Key Data Points
Kohl's Q1 earnings
Kohl's did raise its gross profit margin by half a percentage point to 39.5% and worked off 13% of its inventory -- a neat trick for a brick-and-mortar retailer: growing margins while unloading stale inventory! Kohl's also trimmed selling, general, and administration (SGA) spending by 0.8%.
These cuts failed to offset a sales decline of 5% year over year, however. As a result, SGA costs as a percentage of sales increased, cutting Kohl's operating profits in half. Bottom line: The company's $0.24 per share loss completely wiped out Kohl's year-ago $0.13 per share profit.
Is Kohl's stock a sell?
So, that's the bad news. What's the good news?
Well, things should get better as the year progresses. Kohl's forecasts sales declining 2% to 4% through the end of 2024, which isn't great, but it's better than Q1's 5% decline. Operating profit margins should remain positive in the 3%-ish range. And on the bottom line, Kohl's says it will be profitable this year, earning between $1.25 and $1.85 per share.
Even at the bottom of that range, $1.25 in profit makes Kohl's only a 16 price-to-earnings (P/E) stock. And if Kohl's can earn $1.85 per share, its P/E drops to just 11. Factor in a generous 7.3% dividend yield -- which Kohl's should be able to maintain if profits are as expected -- and Kohl's shouldn't have to grow much at all over the next five years to make this stock a real bargain.
If I owned Kohl's stock today, I don't think I'd sell it.
