It's no mystery to this market that the department store industry has been down and out with the declines in mall traffic, shifting consumer buying interests, and increased online competition. Kohl's (KSS 41.93) has been caught up in that negative mix, yet its second quarter results suggest the worst of the related sales and earnings problems may be behind it, which could help reduce the elevated level of short interest in its stock.
To be clear, the second quarter results from Kohl's were not great in an absolute sense. They were reassuring, however, in a relative sense.
Total sales dipped 0.9% to $4.14 billion, comparable sales declined 0.4% versus a 1.8% decline in the same period a year ago, the gross margin rate contracted six basis points to 39.4%, and its adjusted diluted earnings per share increased 2% to $1.24, topping analysts' average expectation.
The comparable sales decline was below estimates, yet that disappointment was offset by the retailer's acknowledgment that the traffic momentum seen in the March/April period accelerated in the second quarter and that it saw a sequential sales trend improvement in all lines of its business, all geographic regions, and in both its proprietary and national brand portfolios.
That qualification created a sense that operating trends are stabilizing, which could set up Kohl's to deliver better profit growth in coming periods given the cost-saving initiative it has implemented to deal with the adverse trends affecting its business and the department store industry.
Kohl's did not provide any guidance in its press release, but it will be holding an earnings conference call at 8:30 a.m. ET.
The FY17 guidance Kohl's provided after its fiscal fourth quarter report in February called for a total sales change of (1.3%) to 0.7%, a comparable sales change of (2%) to 0.0%, and earnings per share to be between $3.50 and $3.80.
Shares of KSS are down 15.1% year-to-date, but are trading 1.2% higher in pre-market action.