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Will Kohl’s Q1 Results Reflect Its Plight amid COVID-19?

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Kohl’s (NYSE:KSS) will likely report its first-quarter results on May 19. The mid-tier department store chain temporarily closed its stores starting on March 19 to help curb the COVID-19 outbreak. On May 4, the company reopened its stores in four states. Kohl’s reopened additional stores in ten states on May 11.

The temporary store closures had a significant negative impact on retailers. Notably, department stores like Kohl’s, Macy’s (NYSE:M), and JCPenney (NYSE:JCP) were already struggling to thrive due to the growing strength of online retailers like Amazon (NASDAQ:AMAZON). Even the phased reopening of stores isn’t expected to bring much relief to department stores due to challenging economic conditions. Amid the COVID-19 pandemic, the unemployment rate has touched a historical high. Customers will likely continue to spend money on essentials and restrict their discretionary spending.

J.Crew and Neiman Marcus have already filed for bankruptcy. JCPenney will likely be the next company in line. According to CNBC’s latest report, JCPenney has made an interest payment of $17 million, which was due on May 7. Earlier, CNBC reported that JCPenney seeks a $450 million loan to finance its possible bankruptcy.

Analysts’ estimates for Kohl’s Q1 sales

In March, Kohl’s withdrew its outlook for the first quarter and fiscal 2020 due to the uncertainty associated with COVID-19. It also reduced its capital expenditure for the year and temporarily suspended its share buyback program. The company fully drew its $1 billion revolving credit facility to maintain financial flexibility during this difficult situation. Macy’s also withdrew its guidance and suspended its dividends. The company cut down on its non-essential expenditure.

Companies and analysts have a hard time estimating the negative impact of COVID-19 related store closures on retailers’ financials. Analysts expect Kohl’s first-quarter sales to decline by about 42.4% YoY (year-over-year) to $2.20 billion. They also expect the company to post an adjusted loss per share of $1.72 in the first quarter of fiscal 2020 compared to an adjusted EPS of $0.61 in fiscal 2019.

Kohl’s stock has fallen in 2020

Kohl’s stock has fallen 67.2% YTD (year-to-date) as of May 14. As of Thursday, Macy’s, Nordstrom (NYSE:JWN), and JCPenney have fallen 70.5%, 61.9%, and 82.6%, respectively, YTD.

Among the 19 analysts covering Kohl’s stock, two recommend a “buy,” 14 recommend a “hold,” and three recommend a “sell.” With an average target price of $21.75, analysts see a potential upside of about 26% in the stock.

Recently, Kohl’s has been taking several initiates to improve its top-line growth. The company’s initiatives include a focus on digital sales and growth categories like activewear. The company teamed up with Amazon to accept Amazon product returns at all of its stores. Kohl’s thinks that this strategic deal will drive additional traffic to its stores.

The future looks very bleak for Kohl’s and its peers. Intense competition from online players and off-price retailers like TJX Companies and Ross Stores has already been crushing them. Kohl’s fiscal 2019 net sales declined 1.5% to $18.9 billion. In early March, Kohl’s CEO Michelle Gass, stated that the company’s fiscal 2019 performance didn’t meet its own expectations. Now, the company faces additional risks due to the COVID-19 pandemic.

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