Kohl's: Earnings Preview

| About: Kohl's Corporation (KSS)

Kohl’s Corp. (NYSE:KSS) is scheduled to announce its third quarter 2011 results on November 10, 2011, and we see limited revisions in analyst estimates at this point. Currently, the Zacks Consensus Estimates for earnings and sales are 78 cents per share and around $4,390 million, respectively.

Second Quarter Overview

Kohl's reported better-than-expected results for the second quarter of 2011 back on August 11. Earnings per share came in at $1.09 per share, a penny above the Zacks Consensus Estimate. It was a 30% increase over the same quarter in 2010.

Net sales rose 3.6% to $4.2 billion, driven by a 1.9% increase in comparable store sales.

The gross margin increased by 40 basis points to 40.7%, on the back of increased penetration of private and exclusive brands and disciplined inventory management. The operating margin also jumped 110 basis points to 12.0% of net sales.

Management Guided

Driven by strong profits in the second-quarter, Kohl’s now expects to increase its total sales forecast to range between 4%-6%, and comparable store sales forecast to 2%-4%. The company also anticipates a gross margin in the range of down 10 basis points to up 10 basis points. Selling, general and administrative expenses are expected to increase in the range of 1.5% -3%.

In addition, Kohl’s expects to repurchase approximately $500 million worth of shares in the third-quarter 2011, which is expected to result in earnings per share in the range of 76-82 cents for the third-quarter 2011.

For fiscal 2011, the company has further increased its earnings guidance from $4.25-4.40 per share to $4.45-4.60, as a result of its strong second-quarter performance and its third-quarter share repurchase estimate.

Agreement with Analysts

Although the analysts projected strong growth for the company after the solid second quarter results, we don’t see any significant movement in analysts' estimates for the upcoming quarters or fiscal years over the past 30 days or 7 days, as we head into the third quarter 2011. With a mixed sentiment, the estimate revision trends justify a neutral sentiment on the stock.

Out of the seventeen analysts providing estimates for the current year, three of them revised their estimates upwards, whereas three of them lowered their estimates over the past 30 days.

Out of the 20 analysts, three upgraded their estimates for the fiscal year 2013, while four of them downgraded their estimates over the past 30 days.

The mixed reactions point to the absence of a major catalyst that could drive results.

Magnitude of Estimate Revisions

Over the past 30-days, the estimates have moved up by a penny in the current quarter and in the fiscal year 2012 to 78 cents per share and $4.43 per share, respectively. On the other hand, the estimates declined by a penny for the fourth quarter 2011 and fiscal 2012 to $1.94 per share and $5.14 per share, respectively.

Kohl's has a solid balance sheet and strong free cash flow which it has used to 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.

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