On Thursday, JPMorgan (NYSE:JPM) downgraded shares of Kohl's Corp (NYSE:KSS) from Neutral to Underweight, setting a price target of $19.00. The downgrade followed Kohl's second-quarter earnings report, which revealed a same-store sales decrease steeper than analysts had anticipated.
Despite a reported earnings per share (EPS) of $0.59, surpassing the expected $0.46, the retailer experienced a 5.1% decline in same-store sales, which was more pronounced than the forecasted 2.6% drop.
Kohl's sequential decline in same-store sales from the first quarter, which was a 4.4% drop, persisted into the second quarter, despite improvements in weather conditions and a reduction in clearance sales that had previously impacted results.
The company's management attributed this trend to a change in spending behavior among middle-income consumers. In response to the current retail environment, Kohl's has revised its full-year 2024 EPS outlook upwards to $1.75-$2.25, exceeding the previous guidance of $1.25-$1.85.
The updated financial guidance from Kohl's management also included an anticipated operating margin range of 3.4%-3.8%, an improvement from the earlier range of 3.0%-3.5%. This adjustment excludes potential impacts from changes in credit card late fee regulations, which are currently under litigation.
If these potential regulatory changes are factored in, the EPS forecast is effectively reduced to $1.15-$1.65, indicating a 10% decrease at the midpoint compared to the prior guidance.
Lastly, Kohl's has adjusted its same-store sales expectations for the year, now projecting a decline between 3% to 5%, which is a downward revision from the previous estimate of a 1.0% to 3.0% drop. This is more pessimistic than the market's expectation of a 2.1% decrease.
However, Kohl's anticipates a 2% to 3% reduction in selling, general, and administrative (SG&A) expenses, which is more aggressive than the earlier forecast of a 1.0% to 1.5% decrease. The company also reaffirmed its expectation for year-over-year gross margin expansion of 40-50 basis points.
In other recent news, Kohl's Corporation (NYSE:KSS) reported a 13% increase in Q2 2024 earnings despite facing sales challenges. The company's strategic efforts in inventory and expense management have notably contributed to this growth in earnings.
Kohl's has been adapting its marketing strategies to improve the customer experience, including partnerships with Babies "R" Us and expansion of key growth areas such as Sephora, home decor, gifting, and impulse items.
The company faces an economic environment marked by inflation and high interest rates, impacting consumer spending. However, Kohl's remains optimistic about its strategy and long-term success. The company has revised its FY 2024 outlook, projecting a decrease in net sales and comparable sales but expecting gross margin expansion and a decline in SG&A expenses.
Despite the anticipated decrease in net sales, Kohl's is focused on delivering value to customers and is confident in its long-term success, driven by new product initiatives and partnerships.
The company is also dealing with headwinds from inflation and high interest rates, affecting sales in core apparel and footwear. However, Kohl's sees potential growth from partnerships and expansion strategies, demonstrating a proactive approach to overcoming current challenges.
InvestingPro Insights
In light of JPMorgan's downgrade of Kohl's Corp (NYSE:KSS), it's worth considering some key metrics and insights from InvestingPro. Kohl's market capitalization currently stands at $2.18 billion, and it's trading at a low earnings multiple with a P/E ratio of 7.71, indicating that the stock may be undervalued relative to its earnings. This aligns with one of the InvestingPro Tips which suggests that the valuation implies a strong free cash flow yield. Additionally, Kohl's pays a significant dividend to shareholders, with a high dividend yield of 10.18% as of the last recorded date, showcasing the company's commitment to returning value to shareholders for 14 consecutive years.
However, not all indicators are positive. The company's revenue has seen a decline of 3.59% over the last twelve months as of Q2 2025, and analysts anticipate a sales decline in the current year. Despite this, Kohl's has been profitable over the last twelve months, and analysts predict the company will maintain profitability this year. For investors seeking further insights and analysis, there are additional InvestingPro Tips available on https://www.investing.com/pro/KSS, providing a comprehensive look at Kohl's financial health and market position.
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