Shares of Kohl's (KSS) have lost roughly 15% of their value over the past trading week. The department store which sells apparel, footwear and houseware reported very weak comparable store sales growth results for the month of November.
November's Sales Results
Kohl's announed a 4.9% decrease in sales for the four week period ending on November 24. Worse, comparable store sales fell 5.6% in the important month leading into the holiday season. Overall, sales fell to $1.84 billion for the month.
All regions reported negative sales growth, while areas affected by Superstorm Sandy reported the largest declines.
For the first eleven months of the year, sales rose 0.4% as a result of a 1.1% decrease in comparable sales.
CEO and Chairman Kevin Mansell commented on the poor sales results, "Though November sales were lower than expectations, we are encouraged by improved sales over the Thanksgiving week. There was a significant shift in Black Friday-related sales into our E-Commerce channel."
Kohl's saw some improvements in the final week of the period, including a 50% increase in E-Commerce sales. A portion of November's online sales will only be recognized in December's results. This is the result of different revenue recognition accounting rules for online sales compared to brick-and-mortar sales.
Kohl's ended its third quarter with $550 million in cash and equivalents. The company operates with $4.6 billion in short and long term debt and capital lease obligations.
For the first nine months of 2012, Kohl's generated revenues of $12.9 billion. The company net earned $609 million, or $2.54 per diluted share. At this rate Kohl's is on track to generate annual revenues of $18-$19 billion. The company could earn around $1.05 billion for the year, or roughly $4.40 per share.
Factoring in last week's declines, the market values Kohl's at roughly $10.5 billion. This values the firm at roughly 0.6 times annual revenues and 10 times annual earnings.
Kohl's pays a quarterly dividend of $0.32 per diluted share, for an annual dividend yield of 2.9%.
Some Historical Perspective
Year to date, shares of Kohl's have lost roughly 9%. Shares started the year around $49 per share and fell to lows of $43 in June. Shares recovered to highs of $55 early in November on hopes of a strong holiday season. After the release of the disappointing sales numbers, shares are exchanging hands at $45 per share.
Kohl's reported a total sales growth of roughly 12% between its fiscal 2008 and 2012. Net income rose from $857 million to an estimated $1.05 billion, with earnings per share growth increasing even faster. The company almost retired a quarter of its total shares outstanding over the past four years.
Investors are clearly not happy as the decline in same store sales is quite worrisome. Fortunately there are some conditions which can explain part of the poor results. Hurricane Sandy affected all major retailers with operations in the NorthEast. Target (TGT) reported a 1% decrease in comparable sales growth. Macy's (M) reported a 0.7% decline in comparable sales growth while Nordstrom's (JWN) same store sales fell by 1.1%.
Still Kohl's results are much worse compared to some of its main competitors. While some of the E-Commerce sales will be recognized in December, this applies to most major retailers. As such, a large portion of Kohl's underperformance is related to the company itself.
As a result of the disappointing sales growth figures, Kohl's will most likely miss its full year earnings outlook. At the presentation of the third quarter results, the company guided for fourth quarter earnings of $2.00-$2.08 per diluted share, or $4.52-$4.60 per diluted share for the full year. The outlook is based on comparable store sales growth of 3 to 4%, which is no longer attainable. I expect that Kohl's could lower the full year earnings target to $4.40 per share, or lower.
Those looking for bargains this shopping season should not only go to stores but also call their broker. Shares of Kohl's are trading at merely 10 times annual earnings, while the company pays a dividend yield of roughly 3%. Furthermore, earnings per share growth has been impressive as the company retires its own shares at a rapid pace, while maintaining a solid financial position.
Shares offer excellent value at these levels.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.