Kohl’s Q4 profit dips 42%, but beats estimates

Kohl’s Corp. (KSS) reported a 42% dip in earnings for the fourth quarter as tough holiday season hurt sales. Higher costs hampered margin growth and continuing the trend seen in the recent quarters. However, the results exceeded analysts’ expectations. The department store chain guided full-year 2019 earnings above consensus estimates.

Net income plunged 42% to $272 million and earnings dropped 41% to $1.67 per share. Adjusted earnings grew 20% to $2.24 per share.

Total revenues declined by 3.3% to $6.82 billion. Comparable sales increased 1%, marking the sixth consecutive growth.

Looking ahead into the full year 2019, the company expects earnings in the range of $5.80 to $6.15 per share and comparable sales growth of 0% to 2%. Gross margin as a percentage of sales is anticipated to increase up to 10 basis points over 2018. Share repurchases are predicted to be $400 million to $500 million for fiscal 2019.

For fiscal 2019, selling, general and administrative expenses are projected to rise by 1% to 2% over 2018. Excluding the impact of lease accounting, SG&A dollars are predicted to increase by 0.5% to 1.5%. The company sees depreciation expense of $930 million and interest expense of $200 million, including $25 million and $10 million dollar benefits from lease accounting. The effective tax rate is likely to be 24% to 25% for the full year.

The company expects to record $50 million to $55 million of additional charges in the first quarter of 2019. This is part of its Operational Excellence initiatives. Most of the 2019 charges will be related to future lease commitments at the four stores that will be closing. The company will close four underperforming stores in April but will open four new smaller format stores later in the year.

In addition, Kohl’s retired $413 million of debt in the fourth quarter and reported a $21 million loss on extinguishment of debt. Combined with the tender offer in the first quarter and additional open market debt repurchases, the company lowered its outstanding debt by over $900 million and extended the remaining maturity of the portfolio an additional two years. The debt reduction is expected to decrease annual interest expense by about $45 million.

Kohl’s ended the fiscal year with 1,159 Kohl’s stores in 49 states. During 2018, the company opened one Kohl’s store and relocated two Kohl’s stores.

On February 27, 2019, the board of directors declared a quarterly cash dividend on its common stock of $0.67 per share, a 10% increase over its prior dividend. The dividend is payable April 3, 2019, to shareholders of record on March 20, 2019.

Shares of Kohl’s ended Monday’s regular session down 2.39% at $66.47 on the NYSE. Following the earnings announcement, the stock advanced over 5% in the premarket session.

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