Kohl’s Q1 Profit Shrinks, Still Tops Expectations

Andrew Klips |

Kohls StoreKohl’s Corp. (KSS) on Thursday reported a slight decline in sales during the first quarter that dampened profits, but improving margins helped the retailer book higher earnings during the quarter than analysts had predicted. Fewer shares outstanding in the latest quarter compared to last year equated to a 5-percent increase in earnings per share, even with profits lower by 4 percent.

For the quarter ended May 4, Menomonee Falls, Wisconsin-based Kohl’s reported revenue of $4.2 billion, a 1.0 percent decrease from the $4.24 billion in the year prior quarter. Net income totaled $147 million, or 66 cents per share, compared to $154 million, or 63 cents per share, in the first quarter of 2012. The earnings surpassed the high-end of Kohl’s February guidance of profits between 55 cents and 63 cents per share.

Wall Street was expecting earnings per share of 57 cents on revenue of $4.26 billion.

Same-store-sales were lower by 1.9 percent versus the year earlier quarter. Kohl’s, which targets price-sensitive customers, had 1,155 stores at the end of the second quarter, up 21 locations from the same time last year.

Gross margin grew to 36.4 percent from 35.9 percent. The cost of merchandise sold was trimmed from $2.72 billion last year to $2.67 billion, while SG&A expenses were modestly lower at $997 million, versus $1.0 billion in the first quarter of 2012.

The average number of diluted shares was reduced from 245 million in Q1 2012 to 223 million in the recent quarter.

“After a slow start, sales improved considerably in April as the weather finally improved in our most weather-sensitive regions. Despite the lower than expected sales, we outperformed our earnings guidance as gross margin results and expense management were better than expected,” said Kevin Mansell, Kohl's chairman, president and chief executive officer at Kohl’s.

Kohl’s board declared a dividend of 35 cents per share to shareholders of record on June 12, payable on June 26.

Looking ahead, the company sees earnings in the range of $1.00 to $1.08 for the current quarter. Revenue is expected to improve between 1 and 3 percent overall with same-store-sales anticipated growth from flat to 2 percent. The outlook also includes $250 million in planned share repurchases.

Analysts were expecting EPS of $1.05 on about a 3 percent increase in sales.

The results were similar to the earnings proclamation by Macy’s (M) on Wednesday that was ahead of profit predictions. Other major retailers that will be on the watchlists of investors include JC Penney Co. (JCP) and Wal-Mart Stores, Inc. (WMT).

The past 12 months have been choppy for Kohl’s with swings as high as $54.44 in November and as low as $41.04 in January. Shares closed on Wednesday at $49.68, representing a gain of about 9 percent in the last year. So far in 2013, shares are up by more than 16 percent and are looking to start Thursday’s trading ahead by about 6 percent following the earnings news.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
WMT Wal-Mart Stores Inc. 70.08 -0.26 -0.37 10,756,653
M Macys Inc. 42.44 -0.63 -1.46 3,613,151
KSS Kohl\'s Corporation 57.50 -1.93 -3.25 4,169,034
AXS.P.D Axis Capital Holdings Limited Preferred Series D ( 22.64 -0.14 -0.61 48,209
JCP J.C. Penney Company Inc. Holding Company 10.21 -0.35 -3.31 15,424,406

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