Kohl’s earnings preview: Rising costs, competition a concern

Retail giant Kohl’s Corp (NYSE: KSS) will report second-quarter financial results on Tuesday, August 20, before the opening bell. Investors will be interested to see how Kohl’s fared in Q2, in the backdrop of a forgettable retail earnings season.

When the company last reported financial results, the top and bottom line missed Wall Street projections, sending the stock plunging 10%. Total revenues declined by 3% to $4.09 billion, as comparable sales fell 3.6% year-over-year.  Kohl’s management blamed everything from competition to weather and everything in between for the poor results.

Kohl’s had also lowered its fiscal year guidance, indicating prolonged periods weakness.    

The department store chain is expected to report earnings of $1.54 per share, compared to $1.76 it reported in the same period last year. Aggressive discounting and promotional activities to fend off rising competition from both online and offline rivals is expected to have squeezed the margins. Kohl’s inability to peg the rising expenses is an added worry as the retailer heads closer to the second-quarter results.

For the second quarter, analysts have projected Q2 revenues of $4.22 billion, down 2.2% year-over-year.

Comparable sales, meanwhile, would give a hint at how much Kohl’s association with friend-foe Amazon (NASDAQ: AMZN) has turned out. The partnership allows customers to return items bought from the e-commerce giant through one of the Kohl’s stores. Kohl’s would package it and send it back to Amazon.

Kohl’s management was hopeful that at least some of the customers who come to return items would linger around the store long enough to make a purchase. However, on the flip side, the partnership adds to the cost burden on the department store.

READ: JCPenney reports 9% decline in comparable sales in Q2

In yet another innovative step, Kohl’s partnered with Facebook (NASDAQ: FB) to help identify peppy brands that have huge social media following. The collections, dubbed “Curated by Kohl’s” will, however, will appear only next year.

KSS shares have slipped 35% since the beginning of this year. The stock has a 12-month average price target of $58.45, which is at a 33% upside from Thursday’s trading price.