Kohl’s Rallies 7% on Rotation Into Beaten-Down Retail, Macy’s Climbs 3%, Abercrombie & Fitch Slips

Money is rotating back into beaten-down department store names this Wednesday morning, with buyers paying up for a quarter they discounted just a week ago. The peer spread across the sector shows why this is rotation rather than a retail-wide rally, since the cheap names are climbing while the specialty winner is giving back gains.

Kohl’s (NYSE:KSS | KSS Price Prediction) stock is up 7% to $19.03 in mid-morning trading, reversing the post-earnings selloff that followed its August 26 quarterly report. Also bid up, Macy’s (NYSE:M) stock is climbing 3% to $22.65 as the low-multiple department store cohort catches a bid.

Abercrombie & Fitch (NYSE:ANF) stock is down 2% to $138.50 today, giving back a slice of a very large summer run as buyers fund the rotation by trimming the sector’s momentum leader. Notably, the SPDR S&P Retail ETF (NYSEARCA:XRT) is up 0.8% to $86.60, a small move that confirms today’s action is selective and not a broad sector bid.

Reversal of the Post-Earnings Selloff

Kohl’s reported second-quarter results on August 26, delivering net income of $151 million, or $1.28 per diluted share, against adjusted net income of $64 million, or $0.56 per share a year earlier. Moreover, Kohl’s gross margin expanded 305 basis points to 43% with help from roughly $100 million in tariff refunds that flowed through cost of merchandise sold. The stock fell that day despite the beat.

Kohl’s management raised the company’s full-year adjusted EPS guidance to a range of $1.80 to $2.40 and restarted share repurchases, planning up to $100 million of buybacks under an existing $3 billion authorization. The market focused instead on the softer top line, with net sales down 0.9% in the quarter and Sephora sales inside Kohl’s stores down 4%. CEO Michael Bender attributed the Sephora softness to expanded distribution for several established brands that Kohl’s previously carried exclusively, and said newer brands aren’t yet large enough to offset the loss.

Cheap Laggards Bid, Specialty Winner Fades

Both valuation and momentum are splitting the trio this morning. Kohl’s stock was down 11% year to date through Tuesday’s close and Macy’s stock was up 1% year to date, both trading like discounted turnaround stories with room to run if operating trends firm up. Abercrombie & Fitch stock had climbed 41% over the past month heading into today, so profit-taking on that run is doing most of the work on the downside for the specialty apparel name.

The SPDR S&P Retail ETF holds Kohl’s at 1.51% of net assets, Macy’s at 1.37%, and Abercrombie & Fitch at 1.42%, so the barely-changed fund reading argues against a broad-basket chase. The mechanism today is a reversal of last week’s Kohl’s reaction combined with rotation into laggards, and holders are funding the trade by trimming the group’s recent winner.

Both Kohl’s and Macy’s trade at cheaper multiples and lower absolute price levels than Abercrombie & Fitch, which gives them more room to snap back on a favorable read. That valuation gap is doing more work than any shared catalyst this morning, and it explains why the buying favors the laggards over the momentum leader in the group.

Position Sizing Amid the Rotation

The move rewards patience over chasing. Kohl’s has now delivered five consecutive EPS beats, yet comparable sales remain in decline and the second-quarter margin surprise leaned heavily on tariff-refund proceeds. That combination could make underlying-trend comparisons harder for the next several reports, and holiday-quarter execution could decide whether today’s rebound has staying power.

Investors chasing Kohl’s or Macy’s on today’s snapback should size their positions to match the volatility inherent in low-multiple turnaround retailers, while holders of Abercrombie & Fitch stock should consider whether the recent run compressed the risk-reward before adding on any further pullback. A staged entry across the group makes sense given how quickly this trio has reversed in recent sessions.

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