Few industry groups need the relief of good news as much as the department store industry group does. Fortunately, Kohl's (KSS 40.32) provided some today when it released its first quarter results. The qualifier is that it's all relative.
The results from Kohl's weren't stellar. Total sales declined 3.2% to $3.84 billion, which was below analysts' average expectation, and comparable store sales decreased 2.7% on top of a 3.9% decline in the same period a year ago. Still, there were some developments suggesting Kohl's is getting a handle on the challenging industry conditions and that the worst of its earnings downturn may be behind it.
Specifically, Kohl's saw its gross margin rate expand 83 basis points to 36.4% of sales and its operating margin rate increase 214 basis points to 4.81% of sales, aided by a lack of impairment and store closing costs versus the same period a year ago. Merchandise inventories were down 2.3% from the same period a year ago.
Kohl's, effectively, is controlling what it can control from an operational standpoint as it continues to grapple with declining store traffic. Hence, it maintained some operating leverage even though its sales declined in the first quarter.
Net income of $0.39 per diluted share, excluding non-recurring items, was comfortably above analysts' average expectation and the comparable year-ago profit of $0.31 per diluted share.
Kohl's didn't provide any guidance in its press release, although management did note that the retailer saw a significant improvement in sales and traffic for the March and April period after a weak February start to the first quarter.
Kohl's will be holding its quarterly conference call at 8:30 a.m. ET.
The fiscal 2017 guidance the company provided following its fourth quarter report in February called for total sales to be down 1.3% to up 0.7%, comparable store sales to be down 2% to flat, gross margin to increase 10 to 15 basis points over 2016, and earnings per diluted share to range from $3.50 to $3.80.