What to look for when Kohl’s (KSS) reports Q4 results next week

Department store chain Kohl’s Corp. (NYSE: KSS) is working hard to increase store traffic and revive sales, after losing business to online retailers and being hurt by the economic slowdown. As it enters the new fiscal year, the company’s priority is to strengthen the balance sheet and reduce debt through efficient capital allocation.

Stock Dips

The stock suffered a major selloff in mid-2022, and it is yet to make a meaningful recovery. The main cause of the dismal performance is the inflation-induced squeeze on consumers’ spending power. The challenges are likely to persist this year and probably beyond, which makes the stock a risky investment. It is advisable to wait until a clear picture emerges, before investing.

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Read management/analysts’ comments on quarterly reports

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Currently, Kohl’s is in the process of evaluating its real estate on a regular basis to maximize asset value, drive long-term profitability, and optimize the portfolio. At the same time, it is taking measures to enhance traffic through partnerships and to remodel the stores for improving customer experience.

Q4 Report Due

On average, analysts expect Kohl’s fourth-quarter earnings to be $0.98 per share, sharply below the $2.2/share profit the company recorded a year earlier. Signaling broad-based weakness, sales are expected to decline by 3.5% to about $6 billion. The company will be publishing the results on March 1, before regular trading starts.

In the third quarter, adjusted earnings exceeded estimates after two consecutive misses, but dropped 50% to $0.82 per share. The decline can be attributed mainly to a 7% decrease in net sales to $4.28 billion. Meanwhile, the management withheld furth-quarter financial guidance and withdrew the full-year outlook issued earlier, citing macroeconomic uncertainties and an unexpected CEO transition.  

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Earnings: Walmart Q4 results beat estimates; US comps up 8.3%

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From Kohl’s Q3 2022 earnings conference call:

“Looking forward, our capital allocation actions will prioritize the dividend, followed by returning our balance sheet to its historical strengths. We plan to pay down our two bond maturities totaling $275 million in 2023. We are not planning on repurchasing any additional shares until our balance sheet is strengthened on a path toward our leverage target of 2.5 times. We used the recently completed $500 million ASR as a pull forward from 2023.”

Leadership Change

Kohl’s is gearing up for a major leadership change – the departure of chief executive officer Michelle Gass later this year to join another company. Director Tom Kingsbury will serve as interim chief executive officer until the company finds a new chief.

On Friday, the stock traded below $30 and lost further during the session.  Currently, KSS is trading close to where it was six months ago, languishing at a multi-year low.