At a P/E of 10 after its sell-off, Kohl’s stock looks cheap.
Kohl’s (KSS -21.13%) stock collapsed after the company reported mixed earnings for its fiscal third quarter of 2024 Tuesday morning, falling 20% in the first 10 minutes of trading, as of 9:40 a.m. ET.
Analysts forecast Kohl’s would book $3.7 billion in sales for the third quarter ended Nov. 2, and Kohl’s nailed that target. Unfortunately, they also forecast Kohl’s would earn $0.27 per share — but Kohl’s earned only $0.20.
Adding to investors’ distress, the CEO announced last night that he plans to resign effective Jan. 15.
Kohl’s bad Q3 news
Kohl’s hitting its sales target for the quarter still wasn’t great news. Sales declined 8.8% year over year, and same-store sales fell 9.3%. That is to say, stores open a year or more fell a lot, and their decline was mitigated by contributions from newly opened stores.
CEO Tom Kingsbury blamed apparel and footwear for the decline. Sales were apparently stronger at Sephora, in “home decor, gifting, and impulse” buys. The opening of Babies “R” Us shops in 200 Kohl’s stores also helped offset the declines a bit. But overall, the CEO is still “not satisfied with our performance” — not just in the quarter, but in all of 2024.
He noted Kohl’s is taking “aggressive action to reverse the sales declines.” That sounds good, but it probably means Kohl’s will be discounting prices heading into Christmas, reversing gross profit margin gains seen in Q3 (the gross margin was up 20 basis points).
On the plus side, if Kohl’s can get sales growing again, that could help the company’s operating profit margin. One interesting dynamic in the quarter is that Kohl’s cut its spending on selling, general, and administrative (SGA) expenses, but its SGA cost as a percentage of sales still grew — because sales fell faster than Kohl’s could cut costs.
Is Kohl’s stock a buy?
Can Kohl’s turn things around under new CEO Ashley Buchanan, whom Kohl’s is poaching from crafts store Michaels? Perhaps.
Fixing Kohl’s would take time, but Kohl’s stock only costs about 10 times current year earnings. By forcing Kohl’s P/E down below 10, today’s sell-off could turn out to be a buying opportunity.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
