Following a blowout announcement of its first quarter 2013 earnings on May 16, the stock of Wisconsin based retail department store chain Kohl's Corporation (KSS) jumped higher and is maintaining its strong performance for this month to close at a price of $52.35 on May 21. At their current price level, shares of KSS are presently trading only 5.5 percent below their 52-week high of $55.25 per share that was reached during intra-day trading on November 1, 2012. After a lackluster market performance that resulted in a 13 percent decline in the stock of Kohl's Corporation for 2012, the company seems to have turned its fortunes around quickly in 2013 with the current 22 percent increase in KSS shares year-to-date. The stellar performance of the stock of Kohl's Corporation in 2013 was further enhanced on May 16 when the company reported much better than expected earnings that exceeded the average consensus earnings estimate of analysts by a healthy 10 cents per share. For the first quarter of 2013, Kohl's Corporation reported 66 cents earnings per diluted share, which beat the consensus earnings forecast of only 56 cents per share by industry analysts.
Notably, the figure even topped the high-end of the company's own Q1 earnings guidance of 55 cents to 63 cents per diluted share that was issued by chief executive officer Kevin Mansell less than three months ago on February 28, 2013. In the year ago period, Kohl's Corporation generated 63 cents EPS, which means the company was effectively able to grow its earnings by 4.8 percent year-over-year amid a challenging retail environment in 2013. The information in this earnings release reflects positively on management's operational approach and is highly encouraging news for current investors and potential new shareholders that might be looking to add a position in KSS to their equities portfolio in the coming quarter. To better comprehend this company and develop a greater understanding of the underlying reasons for Kohl's Corporation's blowout first quarter earnings numbers, it is necessary to take a closer look at the management strategies that led to these marvelous results. In addition, a careful examination of the technical chart of KSS and the evolving sentiment of the 26 industry analysts providing coverage of the company's stock will be a beneficial guide to evaluating its prospects for a similarly positive performance in the second quarter.
When Kohl's Corporation's chairman, president, and chief executive officer Kevin Mansell originally provided the company's guidance for Q1 2013 on February 28, his estimated range for the earnings per share figures was based on assumptions of a 0.5 to 2.5 percent growth in total sales. Mansell additionally provided those assumptions based on growth in same-store sales of 0 to 2 percent for the comparable year-over-year first quarter period. Interestingly, neither one of these assumptions was realized during the first quarter of 2013, yet the company exceeded its own EPS guidance by 3 cents per share at the top end and blew past the analyst consensus by 10 cents. In its Q1 2013 financial results, KSS reported total sales of $4.199 billion compared to $4.243 billion in the same quarter of 2012, which represents approximately 1 percent year-over-year decline on the top-line number. After a dismal 0.2 percent increase in same-store comparable sales for Q1 2012, the company's comps actually got worse year-over-year with a pathetic 1.9 percent drop in the first three months of 2013. Adding further complexity to the otherwise stellar earnings report, Kohl's Corporation reported net income for Q1 2013 also actually dropped 4 percent from $154 million to $147 million when compared year-over-over to Q1 2012. The reason for first quarter 2013's exemplary EPS that beat analyst expectations was actually a reduction in KSS shares outstanding, which was a result of the company's executives presciently implementing a $1 billion stock repurchase program for 2013. Although this fact does little to improve the operational sales model for Kohl's Corporation, it does speak highly of the foresight with which the company's management is conducting its financial strategy amid the challenging retail sales climate that persists into 2013. By reducing the number of common shares outstanding, Kohl's management was effectively able to achieve growth for the company's EPS in the quarter, even while actual net income was declining.
There is another aspect to the Q1 2013 financial performance by KSS management that is worthy of praise. Analyst firm Zacks noted in a blog entry after the earnings release that KSS increased its gross margin by 50 basis points to 36.4 percent, which they attribute to lower merchandise costs for the quarter. Many retailers are currently facing tremendous pressure on their gross margins, yet Kohl's is finding a way to expand this important metric despite these challenges. Combined with the fact that the company successfully managed to lower its selling, general, and administrative costs during the quarter, investors can feel reassured that the executive management team at Kohl's is making all the right moves to maintain profitability. When investors compare this earnings performance - with a backdrop of year-over-year sales declines - with those of peers such as J.C. Penney and Wal-Mart, the strategic initiatives by KSS management regarding the massive share repurchase plan and major cost reduction throughout the company show that Kohl's is now operating in the sweet spot for a large-cap retail corporation.
A careful examination of the chart for KSS shares shows that the stock is currently trading 4.4 percent above its 8-day exponential moving average of $50.63 per share. The stock is experiencing a breakout in May, with shares already gaining 11 percent since the month began. Much of the price move is a result of the market's positive reaction to the company's impressive Q1 2013 earnings numbers, with KSS shares gapping open the day of the announcement and closing at $52.03 from a previous day's close of $49.68 per share. The favorable price action looks poised to continue as analysts rush to upgrade KSS stock and revise their price targets for the company's shares in the wake of the blowout earnings.
With a consensus hold rating and average price target of $51.88 on KSS stock from industry analysts, the company's shareholders are in a great position to see a lot of positive news in the coming quarter. For example, the day after the earnings report four analysts boosted price targets to much higher levels than the stock currently trades. Given the company's recent financial results, there is a high likelihood that more analysts will follow suit in the next three months by rewarding Kohl's Corporation with upgrades and higher stock price targets. These developments, in addition to the favorable chart pattern and effective cost reduction strategies implemented by senior management, signal that the $52 per share price level is an optimal entry point for those interested in adding KSS shares to an existing investment portfolio.