It's retail week on Wall Street. Yesterday, we heard the good news from Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD) -- read about those here and here. Tomorrow, it's Kohl's (NYSE:KSS) turn to reveal its Q4 and full-year 2005 results. To get you ready for the big day, here are a few thoughts on where Kohl's has been and where it might be going.

Wall Street Wisdom:

  • General consensus. Two dozen analysts follow Kohl's, splitting their ratings evenly between buy and hold.
  • Revenues. Analysts believe that in the fourth quarter, Kohl's grew its revenues by nearly 16% year over year to $4.72 billion.
  • Earnings. Profits are thought to be up a little more than 16%. $1.07 per share is the target.

Margin watch:
Kohl's margins have been marching upwards across the board. The rolling gross margin has risen 160 basis points over the past 18 months, 100 of which passed through to operating profits, and 70 of which made it all the way to the bottom line. When combined with strong revenue growth and minimal share dilution (less than 1% over the past year), these margin improvements offer all the makings of higher profits.

Margins %

7/04

10/04

1/05

4/05

7/05

10/05

Gross

33.9

34.4

35.2

35.2

35.4

35.5

Op.

9.6

9.5

10.6

10.6

10.7

10.6

Net

5.6

5.6

6.2

6.2

6.4

6.3
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
That said, there's still the chance that analysts will find fault with tomorrow's results. In a recent press release, Kohl's expressed confidence that it can meet analysts' earnings expectations, but it advised that sales for the past 13 weeks rose not 16%, but 14.1%. On the one hand, that probably translates into even wider profit margins than we see above (the only way to earn the same profits on fewer sales is by making more profitable sales.) On the other hand, if Wall Street decides to focus on sales growth rather than on profits, or if the less-than-expected sales growth means that Kohl's needs to guide downwards on future quarters' numbers, then Kohl's stock could take a hit, its margin strength notwithstanding, which could present a buying opportunity for investors interested in opening a position in Kohl's.

Competitors:
Kohl's competes with a large number of stores offering similarly reasonably priced wares, including Sears Holdings (NASDAQ:SHLD), Target (NYSE:TGT), JC Penney (NYSE:JCP), and Wal-Mart.

Fool contributor Rich Smith does not own shares of any company named above.