Why Kohl’s Earnings Are Making a Big Noise

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Kohl’s Corp. (NYSE: KSS) reported fourth-quarter and full-year 2018 results before markets opened Tuesday morning. The department store retailer reported quarterly adjusted diluted earnings per share (EPS) of $2.24 on total revenues of $6.82 billion. In the fourth quarter of 2017, the company reported EPS of $1.87 on revenue of $7.06 billion. Fourth-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $2.18 and $6.58 billion in revenue.

For the full year, Kohl’s reported EPS of $5.60, compared with $4.19 in 2017. Revenues rose from $20.08 billion in 2017 to $20.23 billion. Consensus estimates called for EPS of $5.55 and revenues of $19.21 billion.

Same-store sales for the quarter rose 1% year over year, compared with a 6.3% jump in the fourth quarter of 2017. Full-year same-store sales rose 1.7%, compared with a gain of 1.5% in 2017. Gross margin for the quarter was flat at 33.5% and up 32 basis points for the year to 36.4%. Quarterly net income fell by 42% to $272 million, and full-year net income fell by 7% to $801 million.

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

Building on the exceptional holiday we had in 2017, we’ve now achieved a 7 percent increase in the fourth quarter on a two-year basis. … With a clear focus on driving traffic and operating with discipline, the Company is delivering sales growth while also improving profitability. We are financially strong and our overall health in the business is positioning us well for continued success.

The best news from Kohl’s was its outlook. The company expects same-store sales growth to be flat to up 2% and gross margin to rise by 10 basis points above the 2018 level. Full-year EPS is forecast to rise to a range of $5.80 to $6.15.

Analysts had forecast first-quarter EPS of $0.71 and revenues of $4 billion. For the full-year, analysts are looking for EPS of $5.77 and revenues of $19.41 billion.

Kohl’s had a much-better-than-expected fourth quarter and the EPS forecast for the 2019 fiscal year is above analysts’ consensus. The company also boosted its dividend by 10% last week. With net income down on one-time impairment charges, the outlook for the next quarter also likely includes lower costs. Considered together, this is a strong showing for the company and investors are rewarding it this morning.

Shares traded up about 4.6% Tuesday morning to $69.53, after closing at $66.47 on Monday, in a 52-week range of $57.89 to $83.28. The consensus price target on the stock was $73.75 before this morning’s report.

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