On Friday, CFRA made adjustments to Kohl's Corporation's (NYSE:KSS) financial outlook. The firm's analyst has reduced the 12-month price target on the retailer's shares to $20, a decrease from the previous $28, while keeping a Hold rating on the stock. This decision follows Kohl's release of its first-quarter earnings, which fell short of Wall Street's expectations.
The analyst cited a revised FY 25 (January) EPS estimate, now set at $1.75, down from the earlier $2.50 projection, as a basis for the new price target. This estimate is calculated using a 11.4 times multiple, which aligns with the midpoint of Kohl's historical three- and five-year average forward P/E multiples. Additionally, the firm's FY 26 EPS estimate has been lowered by $0.50 to $2.25.
Kohl's reported a normalized Q1 EPS of -$0.24, which not only missed the consensus estimates by $0.30 but also represented a downturn from the $0.13 reported in the same quarter of the previous year. The company's revenues were $3.18 billion, falling short of the expected $3.34 billion by $180 million. In response to the disappointing quarter, Kohl's has revised its full-year EPS guidance to a range of $1.25 to $1.85, and anticipates a decrease in net sales of 2% to 4%.
Despite a challenging quarter, Kohl's noted a 50 basis points year-over-year increase in Q1 gross margin, reaching 39.5%, and a 13% year-over-year reduction in inventory. The company highlighted positive developments in its Women's business and significant growth in its Sephora partnership. Kohl's management also expressed optimism about the future contributions from its partnership with Babies "R" Us.
In pre-market trading, Kohl's shares experienced a significant drop, declining by over 20%. The analyst concluded that despite the share price decline, Kohl's valuation remains unattractive after a quarter that failed to meet expectations and provided less-than-optimistic guidance. The recommendation to maintain a Hold rating suggests that there may be more favorable investment opportunities within the retail and department store sectors.
InvestingPro Insights
As Kohl's Corporation navigates through its recent financial challenges, current real-time data from InvestingPro offers a glimpse into the company's performance and market position. With a market capitalization of $2.42 billion and a P/E ratio standing at 9.25, Kohl's valuation appears to be at a low earnings multiple, which could be a point of interest for value investors. Additionally, the company's P/E ratio has adjusted to 7.35 over the last twelve months as of Q4 2024, suggesting a potentially more attractive valuation in the eyes of some investors.
Despite recent setbacks, Kohl's has maintained its commitment to shareholder returns, as evidenced by its significant dividend yield of 9.51% and a 14-year track record of consistent dividend payments. This could be particularly appealing to income-focused investors. Moreover, the company's stock price has experienced considerable volatility, with a 20.65% drop over the past week, reflecting the market's reaction to its quarterly performance and revised guidance.
For those considering Kohl's as an investment opportunity, there are additional InvestingPro Tips available that could provide deeper insights. These include analysis on the recent downward earnings revisions by analysts and the stock's performance over various time frames. For a comprehensive understanding of Kohl's investment potential, readers can explore these tips and more with InvestingPro, and by using the coupon code PRONEWS24, they can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 11 additional tips listed on InvestingPro, investors have access to a wealth of information to inform their investment decisions.
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