Kohl's Tops Consensus - Analyst Blog

Kohl's Corp. (KSS) registered second-quarter 2010 earnings of 84 cents per share, exceeding the Zacks Consensus Estimate of 81 cents by 3.7% and the year-ago earnings of 75 cents by 12.0%.

The company forecasts earnings of 57 cents–63 cents per share in the third quarter, well below the Zacks Consensus Estimate of 74 cents. Kohl's expects fourth quarter earnings of $1.51–$1.59 per share. For fiscal 2010, the company forecasts earnings of $3.57–$3.70 per share, higher than the Zacks Consensus Estimate of $3.75.

Net sales recorded a growth of 7.7% to $4,100 million from $3,806 million in the year-ago quarter, on the back of market share growth. Revenue as per the Zacks Consensus Estimate was $4,095 million.

Kohl's reported a hike of 4.6% in comparable-store sales. The company anticipates total sales to advance in the range of 4.5%–6.5% in the third quarter and 4.5%–6.5% in the fourth quarter. The company projects same store sales to spike 2%–4% in both the third and the fourth quarters.

Gross margin expanded 30 basis points (bps) to 40.3%, powered by sales growth, prudent inventory management and effective merchandising. For the third and fourth quarters, Kohl's expects gross margin to increase 20–40 bps.

Total selling, general and administrative expenses grew 8.4% to $1,047 million, compared with the year-ago period. Kohl's forecasts selling, general and administrative expenses to grow about 10%–11% in the third quarter and about 3%–4% in the fourth quarter.

Consequently, Kohl's recorded 12.5% growth in operating income to $449 million from $399 million in the year-ago quarter, while operating margin expanded 40 bps to 10.9%.

Kohl's exited the quarter with cash and cash equivalents of $2,518 million, compared with $1,310 million in the prior-year quarter. The company generated $628 million of net cash from operating activities and utilized $421 million towards capital expenditures. Long-term debt and capital leases at the end of the quarter was $1,766 million.

Headquartered in Menomonee Falls, Wisconsin, Kohl's, a specialty department store, continues to surpass expectations with impressive operational efficiency. Moreover, the company's pricing strategy and overall profitability culture is focused on maintaining a low-cost structure. We expect strong traffic and market share gains to drive earnings growth in the near future. To fund the long-term investment in e-commerce, the company continues to leverage store payroll and marketing.

Kohl's shares maintain a Zacks #3 Rank, which translates into a short-term 'Hold' recommendation. Our long-term recommendation for the stock remains Neutral.

 
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