Department store giant Kohl's (KSS 69.92, +3.45, +5.19%)
made a five-week high on Tuesday morning in view of the company’s fourth
quarter earnings beat and better than expected comparable sales.
All told, the Wisconsin-based retailer reported better than expected Q4 earnings of $2.24 per share on revenue declines of 3.4% to $6.54 bln on a 1.9% decline in SG&A to about $1.69 bln. Q4 comparable sales were up 1.0%.
As Kohl’s previously disclosed in an SEC filing in early January, the company decided upon and commenced several operating adjustments in Q4 as part of its Operational Excellence initiatives. Kohl’s will close four underperforming stores in April but will open four new smaller format stores later in the year. The company is also consolidating call center locations that support both its Kohl’s Charge and online customers. Additionally, Kohl’s introduced a voluntary retirement program to qualified hourly associates and impaired certain assets.
These actions are expected to generate annual SG&A savings of about $20 mln dollars and annual depreciation savings of around $5 mln dollars. The company incurred $104 mln dollars in pretax charges in Q4 as a result of these actions and estimates that approximately $50-55 mln of additional charges will be recorded in Q1 of 2019. Most of the 2019 charges will be related to future lease commitments at the four stores that will be closing.
Additionally, the Kohl's Board of Directors declared a quarterly cash dividend on the company's common stock of $0.67 per share, up 10% from the prior dividend of $0.61. The dividend is payable April 3, 2019 to shareholders of record at the close of business on March 20.
Management also outlined initial 2019 earnings guidance in the press release; specifically, Kohl’s expects EPS of $5.80-6.15 for fiscal 2019. This guidance is based on the following assumptions:
- Comparable sales change of 0-2.0%.
- Gross margin as a percentage of sales increasing up to 10 basis points over 2018.8.
- SG&A dollars increasing 1-2% over 2018. Excluding the impact of lease accounting, SG&A dollars are expected to increase 0.5-1.5%.
- Depreciation expense of $930 mln, which includes a $25 mln benefit from lease accounting.
- Interest expense of $200 mln, which includes a $10 mln benefit from lease accounting.
- Effective tax rate of 24-25%.
- Share repurchases of $400-500 mln.
Some interesting comments from the conference call included
managements’ highlight of success in the children's business. Specifically, the
introduction of LEGO and FAO Schwarz, along with enhanced in-store and digital
toy experiences, drove a significant increase in its toys business. Kohl’s
management stated it knew there was an opportunity to gain share this season
due to the closure of a competitor – think Toys ‘R’ Us here.
Another point of interest from comments on the call was CEO Michelle Gass's announcement of a new partnership with Planet Fitness (PLNT 62.51, +0.77, +1.25%). The partnership will initially include up to 10 Planet Fitness locations, which will open adjacent to select Kohl’s stores. The deal is part of an announced Active and Wellness expansion, to approximately 160 of Kohl's highest-performing Active stores, significantly increasing the amount of space allocated to Active in 2019. After the partnership was revealed, shares of PLNT moved to a new all-time high.