Kohl’s H1 2018 Bottom-Line Performance Is Impressive

Kohl’s first-half performance

Over the trailing ten quarters, Kohl’s (KSS) has beaten Wall Street analysts’ estimates eight times, missing its estimates on two occasions. Kohl’s adjusted EPS for the first quarter totaled $0.64—much better than analysts’ estimates of $0.50 for the first quarter and $0.39 reported in the first quarter of 2017. Higher revenues offset the impact of rising expenses and a loss on the extinguishment of debt.

Kohl’s H1 2018 Bottom-Line Performance Is Impressive

Kohl’s second-quarter adjusted EPS came in at $1.76, easily beating the analyst estimate of $1.64. The company reported EPS of $1.24 in the second quarter of 2017. Higher revenues and profits, as well as share repurchases, contributed to this EPS growth.

For the third quarter, analysts expect Kohl’s to report adjusted EPS of $0.96, reflecting YoY (year-over-year) growth of 37.1%. The company’s management hasn’t provided its outlook for the third quarter.

Revised 2018 outlook

After its strong second-quarter results, Kohl’s has increased its fiscal 2018 EPS guidance. Kohl’s expects its fiscal 2018 EPS to reach $4.96–$5.36, up from its previous guidance of $4.86–$5.31.

The company’s adjusted EPS is projected to reach $5.15–$5.55, compared to its previous guidance of $5.05–$5.50. Analysts expect Kohl’s to deliver EPS of $5.49 for fiscal 2018, up from $4.19 reported in fiscal 2017.

Among Kohl’s peers, analysts expect Macy’s (M) to deliver 7.7% YoY growth in its fiscal 2018 adjusted EPS to $4.06. JCPenney’s (JCP) adjusted earnings per share are expected to be -$0.88 versus adjusted EPS of $0.22 reported in fiscal 2017.

Margin numbers

Prudent inventory management has aided Kohl’s margin performance amid rising expenses. Its gross margin was up 50 basis points in the first quarter and 42 basis points in the second quarter.

Kohl’s SG&A (selling, general, and administrative) expenses rose 3.7% in the first quarter, and its SG&A expenses rose 4.3% in the second quarter. Given the increases in its top line, the retailer’s SG&A expense rates in both quarters were almost unchanged.

For fiscal 2018, Kohl’s gross margin is estimated to expand 25–30 basis points. Its SG&A expenses are expected to be toward the high end of the 1.0%–2.0% guided range.