KSS Kohls Corporation

Kohl’s Corporation (KSS) reported its operating earnings of $1.81 per share in the fourth-quarter 2011, beating the Zacks Consensus Estimate by a penny. The earnings, however, surpassed the prior-year quarter’s earnings by 9%.

The company reported operating earnings of $4.30 which fell short of the Zacks Consensus Estimate by a penny. However, it surpassed the year ago earnings by 17%.

Profits were largely driven by prudent expense management and inventory control across many of Kohl’s stores. Besides, E-Commerce business contributed substantially to the sales in the quarter. The launch of the Jennifer Lopez and Marc Anthony brands in the third quarter 2011 also supported the sales plans.
 

Sales and Margins

Amid a challenging sales environment, net sales slipped marginally 0.3% to $6.0 billion, driven by a 2.1% decrease in comparable store sales. The results were in line with the Zacks Consensus Sales Estimates.

During the fiscal year 2011, Kohl’s net sales went up 2.2% year over year to $18.8 billion, driven by a 0.5% increase in comparable store sales. The fiscal results were also in line with the Zacks Consensus Estimate.

In February, 2011, Kohl’s reported that its same-store sales rebounded from December’s downfall as it went up 0.6% in the four-week period ended January 28, 2012. Total sales of Kohl’s climbed 2.4% to $844 million for the five-week period ended January 28, 2012, compared with an increase of 3.4% in the same period a year ago.

The gross margin shrank by 60 basis points to 36.2%, on the back of increased selling, general and administrative expenses as well as a lower operating margin which contracted 90 basis points during the quarter.

Store Update

During the fiscal year 2011 Kohl’s opened 40 stores and now operates 1,127 stores in 49 states, compared to 1,089 stores a year ago. The Company remodeled 100 stores in 2011.

Other Financial Update

Kohl’s ended the quarter with cash and cash equivalents of $1,205 million, while its long-term debt was $2,141 million and shareholders’ equity was $6.5 billion at the end of January 28, 2012.

On February 22, 2012, Kohl's declared a quarterly cash dividend of 32 cents per share of Kohl’s common stock; a $0.07 per share and a 28% increase over previous quarterly dividends, payable March 28, 2012 to shareholders of record on March 7, 2012.

Management Guided

Driven by profits in the fourth-quarter, Kohl’s now expects total sales to go up by 4.5%, and comparable store sales forecast to increase by 2% for the fiscal 2012. It expects earnings per share to be $4.75 for the fiscal year.

For the first quarter 2012, the company expects earnings per share to be 60 cents per share, on the back of an expected sales increase of 3% and a comparable store sales increase of 1%.

Kohl’s has had a consistent merchandise mix over the past three years. In addition, the company’s pricing strategy and overall profitability culture is focused on maintaining a low-cost structure.

A strong balance sheet coupled with strong cash balances and attractive dividend yields makes the stock attractive. However, some mid-priced retailers are struggling to combat rising input costs. Kohl’s also faces increased competition from Target Corp. (TGT), which is a concern.

Kohl’s holds a Zacks #3 Rank, which translates into a short-term Hold rating. Currently, we maintain a long-term Neutral recommendation on the stock.

 
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