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Will Soft Comps Weigh on Kohl's (KSS) This Earnings Season?

Kohl's Corporation KSS is set to report the third-quarter fiscal 2017 results on Nov 9.

Despite continuous efforts to boost store traffic, the company has been struggling with bleak comparable store sales (comps). This trend is likely to continue in the third quarter, which may affect Kohl’s performance.

Let’s look into some of the aspects that are anticipated to have an impact on the company’s third-quarter results.

What to Expect?

The Zacks Consensus Estimate for the quarter under review has been stable at 71 cents over the past 30 days, which depicts a decline of 11.3% from the year-ago earnings of 80 cents.

We note that the company’s earnings have outpaced the Zacks Consensus Estimate in all the trailing four quarters, with an average positive surprise of 18%. In fact, earnings beat the Zacks Consensus Estimate in seven out of past eight quarters.

Kohl's Corporation Price, Consensus and EPS Surprise

Further, analysts polled by Zacks expect revenues of $4,301 million for the third quarter, down 0.6% from the prior-year period.

Factors Impacting the Quarter

Kohl’s has been witnessing dismal comps for some time, thanks to heightened competition and cautious consumer spending on apparel items and accessories. This can be attributed to a difficult sales environment stemming from evolving consumer patterns, which has significantly affected store traffic. Evidently, comps witnessed a year-over-year drop of 2.2% during fourth-quarter fiscal 2016, while it declined 2.7% and 0.4% during the first and second quarters of fiscal 2017, respectively. In fact, comps have declined consecutively in the last six quarters. This indicates that the company’s “Greatness Agenda”, which was designed to increase transactions per store, has been failing to deliver adequate results. The consensus mark for the third quarter projects flat comps with the prior-year quarter.

Nevertheless, Kohl's has been undertaking initiatives to boost its store performance. Since October the company has started offering more outside famous brands, while cutting down sales of in-house clothing brands. Kohl's stores have begun accepting returns from Amazon.com’s AMZN customers on select products in 82 of its U.S. store locations. Kohl's has also started selling Amazon’s devices, accessories and smart home products in 10 selected stores in Los Angeles and Chicago.

Additionally, we expect Kohl's third-quarter performance to benefit from surging e-commerce business. The company has been opening online fulfillment centers and upgrading e-commerce offerings to better serve customers.  Also, the company’s inventory-reducing initiatives are expected to continue delivering positive results.

Notably, these endeavors have helped Kohl’s shares gain 7% in the past six months, as against the industry’s decline of 21%. Let’s see if such efforts will enable Kohl’s to overcome these hurdles in the third quarter.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Kohl's is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Kohl's currently carries a Zacks Rank #2, which increases the predictive power of ESP. However, its ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combinations

Here are some companies which, according to our model, have the right combination of elements to deliver earnings beat.

Zumiez Inc ZUMZ has an Earnings ESP of +0.69% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores Inc ROST has an Earnings ESP of +0.27% and a Zacks Rank #2.

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
Home Depot, Inc. (The) (HD): Free Stock Analysis Report
 
Zumiez Inc. (ZUMZ): Free Stock Analysis Report
 
Ross Stores, Inc. (ROST): Free Stock Analysis Report
 
Kohl's Corporation (KSS): Free Stock Analysis Report
 
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