Retailer Kohl's (KSS 67.00, +0.93, +1.4%) provided a standout earnings report for its fourth quarter. Specifically, what stood out was how much its business improved versus the year-ago period.
Total sales climbed 9.2% to $6.78 billion; comparable-store sales surged 6.3%, versus a 2.2% decline last year; its gross margin rate expanded 43 basis points to 33.8%; and its operating margin rate increased 75 basis points to 8.37%.
The company's GAAP net income rose 86% to $468 million or $2.81 per diluted share. Excluding the effects of tax reform, store closures, and a state tax settlement, Kohl's adjusted net income was up 23.8% to $312 million or $1.87 per diluted share. The latter was well ahead of analysts' average expectation.
Kohl's provided some uplifting commentary, noting it saw consistent, sustained improvement in sales trends, solid expense management across all areas, and improved merchandise margins. In addition, the retailer ended the year with 7% less inventory, which leaves it in a good spot to be less promotional assuming demand remains solid.
Looking to fiscal 2018, Kohl's expects earnings per diluted share to be between $4.95 and $5.45 versus adjusted earnings of $4.19 per share for fiscal 2017. The low end of the guidance range is approximately 4% above the current consensus estimate.
The fiscal 2018 earnings per share guidance is predicated on a comparable sales change of 0% to 2%, a total sales change of (1%) to 1%, and a 5 to 10 basis points increase in the gross margin rate over 2017. Kohl's added that its effective tax rate is anticipated to be 24% to 25%.
Shares of KSS are up 1.4% in pre-market action after having risen close to 10% since February 8. The move ahead of the report can help explain the somewhat reserved response to an undeniably good earnings report that demonstrates Kohl's has done a good job figuring out how to compete in a very challenging retail environment without giving away the store.
At its current price, Kohl's trades at approximately 13x estimated fiscal 2018 earnings, which makes it a standout as a growth opportunity at a reasonable price.