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Kohl’s Fiscal 4Q15 Earnings May Suffer on Lower Sales

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Fiscal 4Q15 results

Kohl’s (KSS) is scheduled to report its fiscal 4Q15 and fiscal 2015 results on February 25, 2016. On February 4, the company provided an update on its fiscal 4Q15 sales.

The company reported disappointing overall sales growth of 0.8% for 4Q15 ended January 30, 2016, and 1% for fiscal 2015. Same-store sales for fiscal 4Q15 and 2015 increased by 0.4% and 0.7%, respectively. The company attributed the subdued sales growth to soft demand for cold-weather goods in January.

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Earnings recap

Kohl’s beat earnings estimates in two of the first three quarters of fiscal 2015. In fiscal 3Q15 ended October 31, 2015, the company’s adjusted EPS (earnings per share) was $0.75. Kohl’s earnings were ahead of the consensus Wall Street earnings estimate of $0.69 for fiscal 3Q15. The 7.1% rise in Kohl’s 3Q15 adjusted EPS, which excludes the impact of one-time items, was primarily driven by higher sales.

Kohl’s earnings growth outperformed peers Macy’s (M), Dillard’s (DDS), and Nordstrom (JWN), which reported falls of 8.2%, 14.9%, and 21.9%, respectively, in their 3Q15 adjusted EPS.

Uncertain environment has affected sales

Department stores are facing pressure due to increasing competition from online retailers and off-price retailers. On February 18, Nordstrom announced 4Q15 adjusted EPS of $1.17, missing analysts’ earnings estimate of $1.21. Nordstrom’s 4Q15 earnings were impacted by tepid 2015 holiday sales. An uncertain retail environment (FXD) and lower-than-expected consumer spending is hurting department stores.

Aside from subdued sales in 4Q15, Kohl’s decision to lower its earnings guidance also resulted from a lower-than-planned gross margin. We’ll discuss this in the next part of this series.

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