Kohl's shares slide despite topping Wall Street earnings, sales expectations

  • Kohl's shares fall Tuesday morning despite beating quarterly earnings and sales estimates and raising its profit outlook for the full year.
  • Ahead of Tuesday's losses, the retailer's stock had surged more than 111 percent over the past 12 months.
A shopper at a Kohl's store in Jersey City, NJ.
Nicole O'Hara | CNBC
A shopper at a Kohl's store in Jersey City, NJ.

Kohl's shares tumbled Tuesday morning despite releasing fiscal second-quarter earnings that beat analysts' profit and sales estimates. The retailer raised its profit outlook for the year, but it wasn't enough to please investors.

Ahead of Tuesday's losses, Kohl's stock had climbed more than 110 percent from a year ago, bringing the retailer's market cap to roughly $13.2 billion. Retail rival Macy's saw a similar sell-off in its shares last week on the heels of a strong earnings report. Its stock value had surged more than 90 percent over the previous 12 months, and analysts said investors were taking profit.

Department store chains like Kohl's and Macy's have been looking for ways to grow sales online, as Amazon increasingly takes market share in categories like apparel and appliances, while foot traffic dwindles at some shopping malls. Meanwhile, consumer confidence is stronger in the U.S., with record low unemployment, giving many retailers a boost ahead of the holiday season as shoppers are more willing to open their wallets.

Kohl's stands out from its peers because of its unique partnership with Amazon today. Kohl's now sells the Amazon Echo, among other tech devices, and has also started accepting returns for the digital retailer at a handful of its stores across the U.S. CEO Michelle Gass said Tuesday during a call with analysts and investors that Kohl's has been "very pleased" with customers' reactions to the pilot test.

"The operations have to work, the financials have to work ... so we are doing our best to really understand and dig deep before any decision is made going forward," Gass said about working more with Amazon.

Kohl's also is investing in finding new uses for its real estate. It's started opening smaller stores and plans to divide some of its larger locations for tenants like grocer Aldi and gyms.

Its new initiatives appear to be paying off and serving as a traffic driver, retail analysts say. Kohl's profit surged 40.4 percent for the quarter ended Aug. 4 to $292 million, or $1.76 per share, compared with $208 million, or $1.24 a share, a year ago. Analysts expected earnings of $1.64 a share, according to a poll by Thomson Reuters.

Revenue climbed 4 percent to $4.57 billion, again ahead of the $4.26 billion forecast by analysts.

Sales at Kohl's stores opened for at least 12 months were up 3.1 percent, better than the 2.7 percent increase that analysts were expecting. The company said online sales increased at a mid-teens percentage rate, fueled by purchases made on mobile devices.

Although Kohl's shares were falling more than 4 percent in early trading Tuesday on the news, some retail analysts are still optimistic about future growth prospects.

"What excites [us] most about the story is the company's potential pipeline of multi-year traffic drivers, including its Amazon Returns partnership and subleasing excess space to other high-frequency concepts," Gordon Haskett analyst Chuck Grom said.

The department store chain said it's men's and women's apparel segments were the strongest during the quarter, followed by shoes. It also reported stronger gross margins thanks to a heightened focus of late on trimming excess inventory and selling more items at full price.

National brands like Nike, Under Armour and Adidas all performed well, Gass said on the earnings conference call, along with Kohl's in-house labels like Apt. 9 and LC Lauren Conrad. Kohl's also announced Tuesday that it will begin selling items from Nine West in stores and online starting next year.

Looking to the full year, Kohl's now expects to earn between $4.96 and $5.36 per share, compared with a prior range of between $4.86 and $5.31 a share. Analysts surveyed by Thomson Reuters were calling for earnings per share of $5.39 in fiscal 2018.