Though optimistic about its fourth quarter, Kohl’s still lowered its earnings forecast for the holiday season. Upon the news, shares of the company fell in early trading.
For the quarter ended Nov. 2, the department store posted net income of $177 million, or 81 cents a share, compared with a profit of $215 million, or 91 cents, a year ago. That was below analysts’ average forecast for earnings of 86 cents a share.
Net revenue was down 1% to $4.49 billion while comparable store sales fell 1.6%. Both results were below analysts forecast for $4.55 billion in sales and a 0.7% decline in comp sales.
Holiday Marketing Spend Up
Gross margin also declined to 37.5% from 38.1%.
Despite the declines, Kevin Mansell, Kohl’s chairman/president/ceo, presented an optimistic view of the company’s fourth quarter.
“As we enter the Holiday season, we believe we are well-positioned from a merchandise content and inventory perspective to gain market share,” Mansell said.
“We have increased our marketing spending and improved its impact and reach in order to drive higher traffic to our stores and on-line. Our customer will find the
perfect gift for everyone on her shopping list at Kohl’s and will be excited by the value she receives in both our only-at-Kohl’s and national brands.”
Nonetheless, that didn’t stop the discount department store chain from narrowing its full year outlook to between $4.08 and $4.23 a share from an earlier $4.15 to $4.35, mostly below analysts’ view of $4.23.
For fourth quarter, Kohl’s projected earnings between $1.59 to $1.74 a share compared with analysts’ estimate of $1.70. Sales are expected to decline 2% to 4% during the crucial holiday period in November and December, a reflection of consumers tightening their wallets.
Since Kohl’s caters to middle-income shoppers, analysts expressed concern about holiday sales.
“With Macy’s raising the top-line bar yesterday, Kohl’s material same-store sales shortfall raises competitive concerns going into the fourth quarter,” JP Morgan analyst Matthew Boss wrote today.
UBS Upgraded Kohl’s Stock
“This guidance assumes continued weakness at the company,” Stifel Nicolaus analyst Richard Jaffe said.
The third quarter report was even more shocking since it came on the heels of UBS analysts upgrading Kohl’s earlier this month to “buy” from “neutral.” UBS had cited Kohl’s new inventory and merchandise strategy, launched in April 2012. UBS called the strategy “a much better, multifaceted strategy” and said Kohl’s has outlined its plans to address each of the business’ key challenges as opposed to simply building up inventories of “low-impact merchandise” to drive traffic and sales.