The stock market is filled with prognosticators, including yours truly, but crystal balls aren’t always needed to make smart investing/trading decisions. Sometimes, you just have to connect the dots and see that the market has a funny way of warning investors what’s about to happen just before it does.
In that vein, it’s no surprise seeing that shares of Kohl’s Corporation (NYSE:KSS) are getting pummeled Thursday, down 12% after the retailer reported weak first-quarterly revenue results. While discussing Macy’s, Inc. (NYSE: M), which missed first-quarter earnings and revenue estimates Wednesday, we practically telegraphed what investors are suffering today with KSS stock.
And this doesn’t bode well for other retailers that have yet to report.
All told, now is not the time to play hero and bet on this sector — not after Wednesday’s report, suggesting that U.S. retail sales flatlines in April, against estimates of 0.2% growth. But like Macy’s, KSS is struggling from an industry phenomenon.
Therefore, if you’ve got long bets placed on the likes of Nordstrom, Inc. (NYSE:JWN), whose report comes out Thursday after the close, you may want to lower your exposure. Same with hhgregg, Inc.(NYSE:HGG), which is due to report earnings results Friday before the open. You can thank me later.
However, Kohl’s, which has now missed revenue estimates in five of the last six quarters, must now pick up the pieces and figure out ways to grow sales. Missing revenue targets is one thing, but averaging negative 1.2% revenue growth in the past six quarters does little to boost investors’ confidence. The punishment unleashed on KSS stock Thursday was from a lot of pent-up frustration.
In other words, Kohl’s, which delivered first-quarter revenue of $4.12 billion, had it coming. While the sales growth marks an increase of 1.2%, KSS stock missed estimate of $4.19 billion.
“Sales were modestly below our original expectations for the quarter, but accelerated in the March/April combined period after a weak February,” said CEO Kevin Mansell in a statement. “We are very pleased with our earnings results, with a more balanced promotional calendar driving merchandise margin combined with strong expense control,” he added.
In that regard, Kohl’s does deserve credit for beating earnings estimates, reaching 63 cents per share, against estimates of 55 cents. It’s the second consecutive quarter in which KSS has done so. And this was owed –partly — to sales, general and administrative expenses coming in flat.
On the positive side, flat expenses implies solid cost controls and a strict focus on the bottom line.
Still, with first-quarter same-store sales climbing at just 1.4%, management can’t under-invest in company indefinitely. Revenue growth is what will turn this ship around, getting KSS stock climbing again.
To that end, despite the 12% decline Thursday, it’s still not too late for investors to take some profits. KSS stock is still up almost 7% on the year and up 22% in the past 12 months. But without better sales results, KSS stock — despite being cheap at just 15 times earnings — will remain under pressure. And no crystal ball is needed for that prediction.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
