Kohl's: Earnings Preview

| About: Kohl's Corporation (KSS)

Kohl’s Corp. (NYSE:KSS) is scheduled to announce its second quarter 2011 results on August 11, 2011, and we see limited revisions in analyst estimates at this point. Currently, the Zacks Consensus Estimates for earnings and sales are $1.08 per share and around $4,266 million, respectively.

First Quarter Overview

Kohl's reported better-than-expected results for the first quarter of 2011 back on May 12. Earnings per share came in at 73 cents, a penny above the Zacks Consensus Estimate. It was a 14% increase over the same quarter in 2010.

Net sales rose 3.1% to $4.2 billion, driven by a 1.3% increase in comparable store sales.

The gross margin held steady at 38.1%. This is a good sign considering the problems other retailers are facing with rising input costs. The operating margin held steady too at 8.7% of net sales.

Management Guided

Driven by strong profits in first quarter, the company expects to earn between $4.25 and $4.40 per share for fiscal 2011, up from the previous guidance of $4.05 to $4.25 per share.

June Same Store Sales

Following the first quarter results, Kohl’s also reported exceptionally strong comp sales for the month of June on July 7. Total sales rose 9.2% thanks to an impressive 7.5% increase in comparable store sales. Year-to-date, total sales are up 4.4% on comparable store sales growth of 2.6%.

Agreement with Analysts

Although the analysts projected strong growth for the company over the next two years after the solid first quarter results, we don’t see any movement in analyst estimates for the current and the next fiscal year over the past 30 days or 7 days, as we head into the second quarter 2011. With a little upside in the current quarter, the estimate revision trends justify a neutral sentiment on the street.

Out of the seventeen analysts providing estimates for the current year, none revised their estimates, whereas only one out of eighteen analysts upgraded his estimate over the past 30 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.

Magnitude of Estimate Revisions

There was no change in the estimates trend for the third quarter or the current and the next fiscal year over the past 30 days. However, the estimates have moved up by 7 cents in the past 30 days for the current quarter.

Kohl's has a solid balance sheet and strong free cash flow which it has used to recently buy back shares and initiate a regular quarterly dividend.

Moreover, 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 are a result of a strong focus on a low-cost structure.

Although some mid-priced retailers are struggling to combat rising input costs and keep customers coming through the doors, Kohl's appears to be doing quite well. Kohl’s also faces increased competition from Target Corp. (NYSE:TGT), which is a concern.

Currently, Kohl’s has a Zacks #3 Rank implying a short-term Hold recommendation. On a long-term basis, we provide a Neutral recommendation on the stock.