Kohl’s Gets a Downgrade after Dismal Holiday Sales

This week has been quite a nightmare for Kohl’s (NYSE:KSS) investors. Three companies lowered their ratings for the mid-tier department store chain. On January 7, Jefferies downgraded Kohl’s from “buy” to “hold.” Cowen then lowered its rating from “outperform” to “market perform” on January 8.

On January 9, Bank of America analyst Lorraine Hutchinson lowered her rating for Kohl’s stock from “buy” to “neutral.” She took this step after the company reported a 0.2% decline in its holiday same-store sales. The Bank of America analyst reduced her price target from $55 to $50. Meanwhile, JCPenney’s (NYSE:JCP) holiday same-store sales fell 7.5%. Macy’s reported a 0.6% decline in its 2019 holiday same-store sales on an owned plus licensed basis.

In contrast, Gordon Haskett upgraded Nordstrom (NYSE:JWN) stock to “accumulate” from “hold” on January 8. Haskett also increased Nordstrom’s price target to $48 from $36.

Why Kohl’s stock got a downgrade

As per The Fly, Hutchinson believes that Kohl’s weak holiday sales reflect that the company’s new products, additional traffic from Amazon’s (NASDAQ:AMZN) returns program, and strategic investments aren’t enough to offset the impact of retail headwinds. The analyst also lowered her fiscal 2020 estimate for Kohl’s after the company revised its fiscal 2019 outlook yesterday.

Kohl’s expects fiscal 2019 EPS at the low end of its prior outlook range of $4.75–$4.95. This guidance excludes the impact of certain nonrecurring items recorded in the first nine months of fiscal 2019. Analysts expect Kohl’s net sales to fall 1.6% to $18.9 billion in fiscal 2019 and rise 0.8% to $19.0 billion in fiscal 2020. They expect the company’s fiscal 2019 adjusted EPS to fall 14.3% to $4.80. Analysts also expect its fiscal 2020 adjusted EPS to fall 3.1% to $4.65.

Stock continues to fall

Kohl’s stock plunged 23.2% in 2019. As of January 9, it was down 9.4% from the start of 2020. Several analysts have lowered their price targets for Kohl’s stock after its weak holiday sales update. On January 9, Cowen and Company further lowered its target to $48 from $53. It had downgraded Kohl’s on January 8 and cut its price target by $3 to $53. On January 10, Telsey Advisory Group cut its price estimate to $45 from $48. Deutsche Bank cut its price target to $46 from $48. Wedbush lowered its price target by $5 to $45.

The average analyst price estimate of $47.38 reflects an upside potential of over 1% for KSS over the next 12 months.

Kohl’s is trying to improve its women’s business by revamping its assortment. For example, it’s introduced brands such as Nine West and Elizabeth and James to attract more customers. Meanwhile, it’s exited the Dana Buchman brand. It’s also enhancing its home offering with the launch of brands such as Scott Living.

Kohl’s remains optimistic about its partnership with Amazon. It expects the Amazon returns program to contribute positively to its fiscal 2019 operating income. However, investors are growing increasingly concerned as to whether this collaboration is actually generating any material benefit for Kohl’s.