Kohl's: Earnings Preview

| About: Kohl's Corporation (KSS)

Kohl’s Corp. (NYSE:KSS) is scheduled to announce its first quarter 2011 results on May 12, 2011, and we see limited revisions in analyst estimates at this point. Currently, the Zacks Consensus Estimate is 72 cents per share and sales estimate is around $4,258 million.

Fourth Quarter Overview

Kohl’s fourth quarter earnings increased 18.6% from the year-ago period. The year-over-year profits were primarily driven by improved merchandise margins, strong inventory management and successful brand strategies.

For the full year, earnings came in at $3.65 a share which was up 13% compared to $3.23 in fiscal 2009. However, annual earnings were below the Zacks Consensus Estimate of $3.73.

Net sales for the quarter recorded a growth of 6.3% to $6.0 billion from $5.7 billion in the year-ago quarter, on the back of market share growth. Revenues were in line with the Zacks Consensus Estimate.

Annual revenues spurred 7.1% to $18.4 billion which was ahead of the Zacks Consensus Estimate of $18.3 billion.

Gross margin expanded 40 basis points (bps) to 36.8%, powered by sales growth, prudent inventory management and effective merchandising.

The strong performance in the quarter was mainly driven by a 4.3% growth in same-store sales. Further, prudent inventory management and effective merchandising have boosted margin and we believe will continue doing the same in the coming quarters.

Management Guided

Driven by strong profits in fiscal 2010, the company provided first quarter and full fiscal 2011 earnings guidance. For the first quarter, the company expects earnings to be in the range of 68 cents to 73 cents, whereas for the full year earnings are projected in the rage of $4.05 to $4.25 a share.

The company anticipates total sales to advance in the range of 4.0%–6.0% both in the first quarter and fiscal 2011. The company projects same store sales to spike 2%–4% in the first quarter and full year 2011 as well.

First-Quarter 2011 Zacks Consensus

Analysts covered by Zacks expect Kohl’s to post first-quarter 2011 earnings of 72 cents a share. The current Zacks Consensus inched up 12.5% from the year ago period and ranges within a low of 70 cents to 74 cents.

Agreement of Analysts

Out of the sixteen analysts providing estimates for the first quarter 2011, four downgraded their estimates in the last 7 days for the quarter. Out of twenty one analysts providing estimates for the fiscal 2011, four analysts upgraded their estimates, while four other analysts downgraded their estimates in last 7 days.

The limited number of changes to estimates point to the fact that there was no major catalyst during the quarter that could drive results. Consequently, most of the analysts are sticking to the estimates they projected post fourth quarter earnings.

Magnitude of Estimate Revisions

There was no change in the Zacks Consensus Estimates for the first quarter and fiscal 2011 over the past 30 days. However, the fiscal 2011 estimates moved down by 3 pennies in the past ninety days.

Recommendation

We remain encouraged by the company’s consistent merchandise mix over the past three years.In addition, the company’s pricing strategy and overall profitability trend comes due to a strong focus on maintaining a low-cost structure. However, increased competition from Target Corp. (NYSE:TGT) is a concern.

Currently, Kohl’s has a Zacks Rank #3 implying a short-term Hold recommendation.