What Kohl's Did Right This Holiday Season

Retailer Kohl’s Corp. (NYSE: KSS) reported Monday morning that same-store sales in the two-month holiday period rose 6.9% year over year. The company took the occasion to raise its profit forecast and reiterate its gross margin expectations for its fiscal fourth quarter.

Unlike recent warnings from financial and energy companies, Kohl’s said it expects recent changes in federal tax law to be positive for the firm’s effective tax rate and to generate a noncash benefit related to tax-deferred balances from last year.

CEO Kevin Mansell said:

We are very pleased with our Holiday period sales, which were consistently strong through November and December. All lines of business and all regions reported positive comp sales. As expected, growth in digital demand accelerated significantly in the Holiday period from the year-to-date trend. In addition, we experienced positive sales in our stores driven by stronger traffic.

Better results everywhere: all lines, all regions, digital way up, more store traffic. There’s no secret to succeeding at retail: sell more stuff to more people at a positive margin, and that’s just what Kohl’s did. The acceleration in digital sales, while not likely to strike fear into Amazon’s heart, at least demonstrates that a traditional retailer can compete in the brave new world.

The company raised its fiscal 2017 diluted earnings per share (EPS) guidance from a prior range of $3.72 to $3.92 to a new range of $4.10 to $4.20. Excluding a previously disclosed tax settlement of $30 million, adjusted EPS guidance rose from a prior range of $3.60 to $3.80 to a new range of $3.98 to $4.08. Analysts had been looking for adjusted EPS of $3.64 for the 2017 fiscal year.

Kohl’s continues to expect its fiscal 2017 gross margin rate to be higher than the prior year, which indicates that the store may not have had to discount as heavily as feared, although SG&A is forecast to increase at the high end of the firm’s prior guidance of 0.5% to 2.0%.

Shares traded up as much as 7% in Monday’s premarket and at last look traded up almost 5% at $57.00 in a 52-week range of $35.16 to $57.28. The 12-month consensus price target on the stock is $48.94. Kohl’s reports 2017 results on March 1.