Kohl's Stock Heads Toward Worst Day Ever After Earnings

Kohl's (KSS) stock is down more than 25% midday Thursday after the department store chain failed to meet revenue and earnings expectations for its fiscal first quarter and slashed its outlook for the full year. If these losses hold through the close, it will be the retail stock's worst day ever, according to Dow Jones Market Data.

In the 13-week period ended May 4, Kohl's reported net sales of $3.2 billion, a decrease of 5.3% year-over-year, as its comparable-store sales fell 4.4%. On the bottom line, KSS swung to a per-share loss of 24 cents compared to earnings of 13 cents per share in the year-ago period.

"Our first-quarter results did not meet our expectations and are not reflective of the direction we are heading with our strategic initiatives," CEO Tom Kingsbury said in a statement. "Regular price sales increased year-over-year, with early success in underpenetrated categories, positive trends in our Women's business, and continued strong growth in Sephora."

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However, Kingsbury added that lower clearance sales this year vs last created a big drag on same-store sales.

The results came up well short of analysts' expectations. According to CNBC, Wall Street was anticipating revenue of $3.3 billion and earnings of 4 cents per share.

After the weak start to the year, Kohl's lowered its full-year outlook. It now expects sales to decrease 2% to 4% and earnings to arrive in the range of $1.25 to $1.85 per share. It had previously guided for sales to land between a decrease of 1% to an increase of 1% and EPS to fall between $2.10 to $2.70.

"We are approaching our financial outlook for the year more conservatively given the first-quarter underperformance and the ongoing uncertainty in the consumer environment," Kingsbury said.

Is Kohl's stock a buy, sell or hold?

Heading into today's trading, the consumer discretionary stock was down 5% for the year to date. As such most analysts were on the sidelines. 

While the average analyst price target of $26.79 represents implied upside of more than 35% to current levels, according to S&P Global Market Intelligence, the consensus recommendation is a Hold.

UBS Global Research analyst Jay Sole, however, is decidedly bearish toward Kohl's stock. The analyst maintains a Sell rating on the shares and a $15 price target, representing a discount of more than 24% to current levels.

"Kohl's effort doesn't look like it is generating much incremental sales growth," Sole wrote in a May 20 note to clients. "Thus, we think KSS will likely have given up some of its long-term profit margin potential for little in return since price decreases are very difficult to reverse." 

The analyst also believes that Kohl's lost big market share at the start of its fiscal year, which "gives us increased conviction in our Sell rating."

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