Why Kohl's (KSS) Shares Are Trading Lower Today

What Happened:

Shares of department store chain Kohl’s (NYSE:KSS) fell 27.9% in the morning session after the company reported first quarter results that missed significantly on same-store sales, leading to an EPS miss. Precisely, net sales decreased 5.3% and comparable sales fell 4.4%. The weakness was mostly driven by a significant decline in clearance sales, which negatively impacted overall comparable sales by more than 6%. Looking ahead, the company lowered its full year outlook across the board. Management attributed the conservative guidance to the Q1 underperformance and the ongoing uncertainty in the consumer environment. Despite these challenges, Kohl's highlighted some positive aspects of its performance, including improved gross expansion (highlighting success with its improved pricing strategy), inventory reduction, and continued strong growth in Sephora. Overall, this was a bad quarter for Kohl's given the weak performance and poor guidance.

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What is the market telling us:

Kohl's's shares are quite volatile and over the last year have had 36 moves greater than 5%. But moves this big are very rare even for Kohl's and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 7 months ago, when the company gained 9.1% as retail stocks surged after bellwether Target reported third quarter results that blew past analysts' EPS expectations, driven by a small beat on revenue, better profitability, and a lower-than-expected tax rate. While same-store sales declined, the figure exceeded analysts' expectations. The company also generated healthy operating cash flows and repositioned its inventory into a healthier position. Next quarter's EPS guidance was slightly ahead of Consensus. Zooming out, we think Target’s quarter was an impressive one that should please shareholders, especially in light of some troubling consumer commentary from other companies.

Kohl's is down 28.7% since the beginning of the year, and at $20.01 per share it is trading 31.9% below its 52-week high of $29.36 from December 2023. Investors who bought $1,000 worth of Kohl's's shares 5 years ago would now be looking at an investment worth $397.67.

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