Here's Why Kohl's Shares Are Down Despite Q1 Earnings Beat

Shares of Kohl's Corporation (NYSE:KSS) have fallen roughly 8% since it reported first-quarter fiscal 2017 results. The company delivered better-than-expected earnings of 39 cents per share that not only beat the Zacks Consensus Estimate by 39.3%, but also grew 26% from the prior-year quarter.

In fact, the bottom line outpaced the estimates in eight of the past 10 quarters. The year-over-year increase was due to the margin improvement, driven by strong inventory and expense management. But why the company’s shares are declining? Let’s find out.

Deeper Insight

Though Kohl's has an impressive earnings history, its sales have lagged the Zacks Consensus Estimate in eight of the past 14 quarters that includes the reported quarter. Also, it declined 3.2% from the prior-year quarter due to a challenging sales environment and lower comparable store sales (comps). This indicates that the company’s strategic initiative ‘Greatness Agenda’ is failing to deliver results.

The initiative that commenced in the first quarter of fiscal 2014 was designed to increase transactions per store and sales. Further, comps started declining since the first quarter of fiscal 2016 and plummeted consecutively for the next five quarters, including the current one.

In addition, lower spending on apparel and accessories as well as a general slowdown in consumer spending are hurting sales at department stores. A highly competitive market from online retailers also seems to hinder sales of Kohl's. Consequently, management continues to expect sluggish comps amid a difficult sales scenario, going further.

Kohl's did not provide any update on fiscal 2017 outlook in the current quarter. But in the preceding quarter, management had anticipated earnings in the range of $3.50−$3.80 per share for fiscal 2017. Additionally, it projects sales to be up 0.7% to down 1.3%, which includes sales of approximately $160 million in the 53rd week. The Zacks Consensus Estimate for fiscal 2017 and second quarter is currently pegged at $3.60 and $1.16, respectively.

Notably, shares of the company have plunged 32.1% over the past six months compared with the Zacks categorized Retail – Regional Department Stores industry’s decline of 42.1%.

Nonetheless, Kohl’s boasts a robust brand portfolio and a solid e-commerce business. Also, it has been trying hard to attract more shoppers and improve sales. Lately, the company has started offering more outside famous brands and cutting down on the number of in-house clothing brands it sells. The addition of Under Armour workout tights, sneakers and other gear in March was a great success, and very well accepted among customers. It also helped to boost sales of the entire active apparel department in the fiscal first quarter, despite decline in women's, children's and accessories units.

Kohl's currently carries a Zacks Rank #3 (Hold).

Key Picks

Investors can count on some better-ranked stocks in the broader Retail-Wholesale sector that include The Children's Place, Inc. (NASDAQ:PLCE) , Tecnoglass Inc. (NASDAQ:TGLS) and Gildan Activewear Inc. (TO:GIL) .

The Children's Place, with a long-term earnings growth rate of 8% has surged 48.9% in the past one year. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tecnoglass, a Zacks Rank #1 stock has a long-term earnings growth rate of 20%.

Gildan Activewear, carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 12.3%. Further, it has increased 8.7% in the past three months.

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