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Kohl's cuts profit projections, causing stock to plunge despite rise in same-store sales

Published November 19, 2019

MILWAUKEE – Sales at established Kohl's stores rose modestly in the third quarter, but overall revenue was flat, earnings fell short of analysts' expectations and the company sharply lowered its projected annual profits.

The results, released Tuesday, sent shares of the Menomonee Falls-based retailer plunging. They lost 19.5%, closing at $47.02, down $11.38.

A return to positive sales growth was reported at stores open at least a year after a 3.2% decline in the important indicator over the first six months of 2019. For the three months ended Nov. 2, sales at such stores were up 0.4%.

Price-cutting contributed to the reduced earnings as Kohl’s prioritized store traffic over profit. The company is willing to endure what it believes will be a short-term hit on earnings in exchange for growing its customer base in the long run, CEO Michelle Gass said in an interview.

“Everything starts with growth,” she said.

Gass said Kohl’s is at “a very unique point,” with the release of new brands such as the Elizabeth and James clothing line from Mary-Kate and Ashley Olsen and Amazon returns service now installed throughout the chain’s more than 1,150 stores.

“It’s really important that we capitalize on this moment and drive market share and customer acquisition,” Gass told analysts on a conference call.

In a research note Tuesday, Morningstar analyst David Swartz said Kohl's estimate that same-store sales will rise no more than 1% in the fourth quarter is "a disappointing outlook for the critical holiday season."

Jane Hali, CEO of investment research firm Jane Hali & Associates, believes the issues run deeper.

“The whole problem with the department store sector, including Kohl’s, is that … the true department store customer is a boomer, and these are the people who aren’t buying goods in the soft line space,” Hali said. “They’re traveling. They’re doing other things.”

Kohl's, however, did much better than struggling rival J.C. Penney. Third-quarter sales at Penney stores open at least a year fell 6.6% on an adjusted basis, the firm said Friday.

Discounters Walmart and TJX Companies, meanwhile, posted relatively strong third-quarter results. Sales at U.S. Walmart stores open at least a year were up 3.2%, the retailer reported last week. TJX, whose brands include TJ Maxx, Marshalls and HomeGoods, said Tuesday that comparable-store sales in the quarter increased by 4%.

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