Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Kohl's Corp. Are Tumbling Today

By Timothy Green - Feb 4, 2016 at 1:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The retailer was forced to slash its earnings guidance due to weaker-than-expected holiday sales.

What: Shares of department store operator Kohl's (KSS -0.85%) tumbled on Thursday after the company provided a fourth-quarter financial update, slashing its earnings guidance for the full year. At noon Thursday, the stock was down about 18%.

So what: Kohl's reported comparable-store sales growth of 0.4% for the fourth quarter and 0.7% for the full year, below the company's expectations. CEO Kevin Mansell pointed to extremely volatile sales during the fourth quarter, driven by a highly promotional environment and weak traffic because of unseasonably warm weather.

Due to these issues, Kohl's was forced to engage in higher-than-expected markdowns during the fourth quarter, pushing the company's gross margin below expectations. Excluding debt extinguishment charges, full-year EPS is now expected to be between $3.95 and $4.00, down from a previous guidance of $4.40 to $4.60. Analysts were expecting EPS of $4.30.

Now what: The holiday quarter marked the fifth quarter in a row that Kohl's has reported positive comparable-store sales, but the slashed earnings guidance was enough to send the stock lower. Kohl's is set to report its lowest per-share earnings since 2010, despite the fact that extensive share buybacks have lowered the share count by roughly one-third over the past five years.

Shares of Kohl's have carved out a new 52-week low on the news, and management will have a lot of explaining to do when the company formally reports its fourth-quarter earnings on Feb. 25. Other retail stocks are tumbling as well thanks to Kohl's results, including Macy's (M -2.75%), which is down about 3.4% on the news. Macy's is facing its own set of problems, with comparable-store sales slumping 5.2% during November and December. Warm weather and weak tourist spending did a number on Macy's results, and it was forced to slash its own earnings guidance for the fourth quarter.

With Kohl's now following suit, investors are right to be concerned about weak retail traffic. Kohl's will provide initial 2016 guidance when it reports its earnings later this month, and we will need to wait until then to see if the company expects 2016 to be any better.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Kohl's Corporation Stock Quote
Kohl's Corporation
KSS
$37.36 (-0.85%) $0.32
Macy's, Inc. Stock Quote
Macy's, Inc.
M
$19.64 (-2.75%) $0.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.