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Kohl's Is Starting to Make J.C. Penney Look Good

By Rich Duprey - Feb 8, 2014 at 10:30AM

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Both retailers look bad, but at least one has something to crow about

Another troubled department store chain, another depressing look at the Christmas shopping season. 

Kohl's (KSS -12.97%) updated its fourth-quarter guidance Thursday and said same-store sales tumbled 2% for the three-month period, meaning it would have to lower earnings-per-share estimates from $1.59-$1.74 to approximately $1.53. Considering comps barely inched 0.8% higher for the all-important November-December Christmas holiday, it makes the results that J.C. Penney (JCPN.Q) posted look positively robust in comparison.

Like its fading rival, Kohl's is struggling to overcome a persistently sluggish economy, and people are finally waking up to it not being as strong as previously thought: high unemployment, a lack of new-jobs creation, real disposable income plunging the most in 40 years, median household incomes falling for five straight years, total consumer debt now 22% higher than it was three years ago, and student loan debt 61% higher.

Needless to say, the middle class is getting slaughtered, and these are hardly conditions conducive to recovery. Mid-tier retailers like Kohl's and Penney are being taken down with them.

Yet Kohl's is laying a lot of blame for the poor quarter on January store traffic. Without enough clearance merchandise to put out on sale, customers failed to show up as expected, which compounded problems it apparently experienced with its new e-commerce site that caused it to have higher-than-expected expenses. Full-year earnings are now anticipated to come in at $4.03 per share, compared to its previous forecast of $4.08 to $4.23 per share.

The retail landscape is desolate. J.C. Penney was going up against some of the easiest comps in its history and managed to just squeak out a 2% increase for the quarter and a mere 3% rise for the two-month holiday period. Best Buy reported a near-3% drop for the nine-week period, while Sears Holdings comps were down a whopping 9%. Others including Wal-Mart warned of a slow quarter with lower same-store sales expected, RadioShack will be shuttering 500 stores, and even the more financially fit Macy's will be implementing a similar store-closing strategy, albeit on a smaller scale (and its comps for the period were 4% higher).

I've been warning investors for months to stay away from retailers because it was clear early on that their numbers were going to come in much worse than expected, and now the shoes are dropping all over the sector.

Yet the woes being experienced by Kohl's are much more dire, if only because it was thought to be in a much better position than Penney, one where a turnaround effort would take hold. Yet for all the buoyancy the retailer was exhibiting, I warned that Kohl's was simply following Penney's failed playbook. Like its rival, it brought in an outsider to shake things up, made a push for national brands while eschewing in-house favorites -- a move Penney was condemned for doing, by the way -- and introduced random technology flourishes to spice things up. Apparently, all for naught. At least Penney was able to say its numbers were positive for the first time in two years.

The results of the experiment were nothing if not predictable, and all Kohl's has to show for its effort is that J.C. Penney looks good in comparison.

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Stocks Mentioned

Kohl's Corporation Stock Quote
Kohl's Corporation
$39.20 (-12.97%) $-5.84
J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.

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