After a couple of declines, same-store sales at Kohl’s Corporation (KSS) went up 4.1% in the five-week period ended October 1, 2011 compared with an increase of 3.0% in the year-ago period. On a year-to-date basis, same-store sales increased 1.5% in October 2011.
Total sales jumped 5.8% to $1.63 billion for the five-week period ended October 1, 2011 compared with an increase of 5.3% in the same period ended October 2, 2010. Further on a year-to-date basis, total sales increased 3.3% to $11.46 billion, compared with $11.09 billion over the prior year period.
Sales went up mostly due to better consumer traffic and favorable impact of the new launches of Jennifer Lopez and Marc Anthony clothing lines. Further, Kohl’s store brands, such as Simply Vera Vera Wang, helped boost its profit margins.
However, same-store sales at Kohl’s peer company, Saks Inc. (SKS) went up 7.3% for the five-week period in October 1, 2011, while it increased 9.3% for the month of September.
Store Update
In late September, Kohl's opened 30 new stores in 20 states, adding approximately 4,000 new jobs in order to continue its focus on growing market share in a challenging economy. With this, Kohl’s now operates 1,127 stores in 49 states compared to 1,089 stores at the same time last year.
In addition to adding new stores, Kohl’s has also invested in its current store base by adding innovative features. The company has remodeled approximately 100 stores in 2011, an 18% increase from 2010.
Kohl’s also remains focused on the small store concept, which offers better real estate flexibility and provides a platform to open more stores faster.
Guidance
Though Kohl’s had raised its guidance in August for the fiscal year 2011 hoping that its Lopez and Anthony lines would drive more shoppers to stores; however, the company trimmed its outlook on lease accounting changes, which will lower its earnings by about 3 cents per share in each of its remaining quarters and by 11 cents per share for the year.
Kohl’s now anticipates third-quarter earnings in the range of 73 cents to 79 cents per share, down from its August guidance of 76 cents to 82 cents per share. For fiscal year 2011, Kohl's predicts earnings of $4.34 to $4.49 per share, down from its August guidance of $4.45 and $4.60 per share.
Conclusion
Kohl’s has had a consistent merchandise mix over the past three years. In addition, the company’s pricing strategy and overall profitability attitude are focused on maintaining a low-cost structure.
A strong balance sheet coupled with strong cash balances and attractive dividend yields makes the stock attractive. However, mid-priced retailers like Kohl's are struggling to combat rising input costs.
Kohl’s holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. Currently, we maintain a long term Neutral recommendation on the stock.
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