Is Kohl's a Valuable Buy?

Kohl's (KSS -2.01%) fourth-quarter performance wasn't up to the mark. Does this mean that the retailer isn't a valuable buy? Before we arrive at our conclusion, let's see whether issues in the company's core business operations resulted in this performance, or if some external factors caused it.

Fourth quarter results
Kohl's fourth-quarter earnings per share came in at $1.56, after it posted a result of $1.66 in the year-ago period. Sales slipped from $6.34 billion to $6.1 billion, a decline of nearly 4% from the year-ago quarter. Higher shipping costs and marketing expenses increased SG&A expenses by 2%. However, the gross margin improved by 71 basis points.

The company had a 53-week year in 2012 versus a 52-week year in 2013 and this contributed to the sales decline. Unfavorable weather, especially in the month of January, also contributed to its anemic sales.

For fiscal 2013 the company reported EPS of $4.05, which was 2.8% less than its earnings last year. Sales also dropped to $19.03 billion, down 1% from last year. In 2013, Kohl's generated a massive $1.7 billion in sales from e-commerce.

What is Kohl's up to?
Kohl's decision to reduce the stock of national brands at its stores proved to be costly, as the retailer lost many shoppers who were loyal to those brands. To get back on track, the company is now emphasizing more national brands. During the last few quarters, the company had introduced many new brands, which included Jennifer Lopez, Mark Anthony, and Rock & Republic; all these brands have generated positive results up until now. Moreover, Kohl's will launch brands such as DesigNation, Peter Som, IZOD, and Juicy Couture this year.

Earlier this year Kohl's completed its e-commerce replatform, as it believes this will provide huge support for its omni-channel initiatives in the future. The replatform has already improved the checkout experience for customers and effectively handled big traffic. The company's focus rightly remains on enhancing the online shopping experience as it still lags behind retailers like Macy's (M -1.52%), which provides its customers with a great online platform.

Kohl's opened 12 new stores in 2013, which took its total store count to 1,158 stores. For this year, the company plans to open nine new stores. Further, it will also shut down two stores and remodel 35 stores. The company isn't growing as much as other retailers because it's still wary of fragile economic conditions and intense domestic competition.

The company provided a conservative outlook for fiscal 2014; Kohl's forecast EPS for the year of between $4.05-$4.45 per share. It anticipates revenue growth of 0.5%-2.5%. Analysts on average expect earnings per share of $4.40 on sales of $19.34 billion.

Industry peers
In the fourth quarter, Macy's earnings grew more than 11% from the year-ago quarter to $2.31 per share. Same-store sales grew 2.3% despite the unfavorable weather conditions. The company continued to benefit from its M.O.M strategy, which has been a key growth driver for the company in the past few quarters. Macy's has also announced a new cost-cutting plan which will reduce its operating expenses considerably. As part of this plan, the retailer will streamline its organizational structure by realigning its regional operations; it will also slash its office expenditures.

J.C. Penney's (JCPN.Q) latest quarterly results show that the company is finally on the road to recovery. The retailer posted a profit after it had reported losses for over two years. It earned $0.11 a share, after a loss of $2.51 in last year's comparable quarter. Comps also increased by 2%, which again provided a healthy sign for the company. J.C. Penney's online sales also improved substantially with the CEO reintegrating the planning and buying teams. Going forward, the retailer expects mid-single digit comparable-sales growth and it anticipates slight improvement in its gross margin.

Final thoughts
Kohl's had an average fourth quarter. Its earnings and sales fell as a result of extreme winter weather and a calendar shift. The company's e-commerce sales jumped, which is a great sign for the retailer's online segment. Just like other big retailers, Kohl's also knows that e-commerce will be a big revenue driver in the coming years, which is why it's investing in it. However, the company isn't expanding much, which for me is a somewhat worrying sign. This shows that Kohl's isn't very confident about generating incremental profits by expanding in the market. Furthermore, Kohl's has also given a rather dim outlook for this year's earnings and revenue. Considering all of this, I will remain neutral on Kohl's at this point in time.