How Kohl's Earnings Blew Past Expectations

Paul Ausick

Kohl’s Corp. (NYSE: KSS) reported first-quarter fiscal 2018 results before markets opened Tuesday. The department store retailer reported adjusted diluted earnings per share (EPS) of $0.64 on total revenues of $4.21 billion. In the first quarter of 2017, the company reported EPS of $0.39 on revenue of $4.01 billion. First-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.50 and $3.95 billion in revenue.

Same-store sales for the quarter rose 3.6% year over year, compared with a 2.7% dip in the first quarter of 2017. Gross margin improved by 50 basis points to 36.9%, and net income rose 14% to $75 million on a GAAP basis.

Kohl’s reported a loss of $42 million on early extinguishment of debt. Excluding this and other one-time events, adjusted net income totaled $107 million.

The best news from the retailer, at least from a shareholder’s perspective, is a hike in the company’s EPS guidance. Kohl’s raised adjusted full-year guidance from a prior range of $4.95 to $5.45 to a new range of $5.05 to $5.50.

Kevin Mansell, Kohl’s board chair, CEO and president, said:

We are very pleased with our strong start to fiscal 2018 as we continued to focus on our priorities of driving traffic and operational excellence. We built on our recent momentum and achieved our third consecutive quarter of positive comparable sales, which increased on both a fiscal and a shifted basis. Further, we exceeded the high end of our margin expectations through continued focus on inventory management, while expenses were consistent with our expectations as we continue to make investments to ensure our long-term success.

According to Retail Metrics, Wall Street is currently projecting a 16.1% year-over-year retail earnings increase for the 110 chains in the firm’s first-quarter earnings index. If that materializes, it would represent the biggest quarterly retail earnings gain since a 26.3% increase in first quarter of 2010. Retailers are exceeding analysts’ earnings estimates by 3.8% on average, and the first-quarter top line is expected to rise 4.1%, while comparable store sales are forecast to advance a more modest 2.7%.

On an adjusted basis, Kohl’s net income rose 62% year over year and total revenues rose 3.5%. Same-store sales rose 3.6%, so the company went two-for-three, with one grand slam and one two-run homer. No wonder shares are getting some love from investors this morning.

Shares traded up about 6% Tuesday morning at $69.40, after closing at $65.47 on Monday, in a 52-week range of $35.16 to $69.48. The consensus price target on the stock was $69.76 before this morning’s report.