Kohl's Q2 Earnings Top, Sales Decline Amid Consumer Challenges

Kohl's Corporation KSS posted mixed second-quarter fiscal 2024 results, with the bottom line increasing year over year and surpassing the Zacks Consensus Estimate. However, the top line declined and missed the consensus mark.

During the quarter, KSS faced pressure from a challenging consumer environment and a decline in its core business. Customers became more selective with their spending, leading to lower sales despite an increase in transaction frequency. This overshadowed robust performance in key growth areas, including Sephora, home decor, gifting and impulse purchases.

Despite the challenges, Kohl's saw an improved gross margin along with better inventory and expense management. The company remains optimistic about its growth efforts, including an upcoming partnership with Babies "R" Us. It revised its sales outlook downward while raising its earnings guidance for the fiscal 2024.

Kohl's Quarterly Results Overview: Key Financial Metrics

Kohl's posted earnings of 59 cents per share compared with earnings of 52 cents posted in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate of 46 cents. The upside can be attributed to gross margin expansion and robust inventory and expense management.

Total revenues came in at $3,732 million, down from the prior-year quarter's level of $3,895 million. Net sales fell 4.2% year over year to $3,525 million. The Zacks Consensus Estimate for the top line was pegged at $3,802.2 million. Comparable sales declined 5.1% year over year.

Kohl's gross margin expanded 59 basis points (bps) to 39.6% in the reported quarter. SG&A expenses dropped 4.2% to $1,250 million. As a percentage of total revenues, SG&A inched down 1 basis points (bps) to 33.5%.

KSS posted an operating income of $166 million, up from $163 million in the year-ago period. The operating income margin expanded by 26 bps to 4.4%.

KSS's Financial Health Snapshot

The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $231 million and shareholders' equity of $3,830 million. The company provided an operating cash flow of $247 million for six months ended Aug. 3, 2024.

Management expects capital expenditures of nearly $500 million for 2024 (including the expansion of its Sephora collaboration and store-related investments).

On Aug. 13, 2024, Kohl's declared a quarterly cash dividend of 50 cents per share, payable on Sep. 25, to shareholders of record as of Sep. 11.

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What to Expect From KSS in the Fiscal 2024?

For the fiscal 2024, Kohl's forecasts a net sales decline of 4-6%, a revision from the previous expectation of a 2-4% decline. Comparable sales are projected to move down 3-5% compared with the earlier forecast of a 1-3% decline. The operating margin is expected to range from 3.4% to 3.8% compared with the prior estimate of 3-3.5%. Management anticipates earnings per share to be between $1.75 and $2.25, revising the earlier forecast of $1.25 to $1.85.

Shares of the company have declined 28.1% in the past three months compared with the industry's decline of 22%.

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