On Friday, Telsey Advisory Group adjusted its outlook on Kohl's Corp (NYSE:KSS) shares, reducing the retailer's price target to $23 from the previous $28, while keeping a Market Perform rating on the stock.
The adjustment comes after Kohl's reported a disappointing start to fiscal year 2024, marked by weaker sales and increased expenses leading to a significant earnings miss in the first quarter.
Kohl's gross margin did see a year-over-year expansion, slightly above consensus, due to healthier regular price sales. However, comparable sales were negatively impacted by approximately 600 basis points from higher clearance sales in the previous year.
Despite these challenges, the company effectively managed inventory levels and saw a notable 60% increase in Sephora sales, with comparable sales rising over 20% in the first quarter.
The retailer is also experiencing positive developments in underpenetrated categories such as home décor, gifting, and impulse, all of which have shown strong sales growth in the first quarter.
Additionally, Kohl's is set to launch a partnership with Babies R Us in the third quarter, featuring 200 shop-in-shops, which is expected to enhance its baby gear and accessories offerings.
However, in light of the difficult start to the year and an uncertain consumer environment, Kohl's has revised its full-year 2024 guidance downwards for both sales and earnings per share (EPS), now projecting figures well below those of fiscal year 2023.
The revised outlook reflects the ongoing challenges Kohl's faces as it strives for stability and a turnaround amidst a tough macroeconomic climate. This situation contrasts with the solid performance reported by its peers in recent weeks.
The price target reduction to $23 is based on an 11.3x multiple on Telsey's two-year forward EPS estimate of $2.03 for Kohl's, aligning with the historical average next twelve months (NTM) multiple.
InvestingPro Insights
In the wake of Telsey Advisory Group's revised outlook on Kohl's Corp, real-time data and analysis from InvestingPro provide additional context for investors. With a market capitalization of $2.33 billion and trading at a low earnings multiple of 7.21, Kohl's appears to be undervalued, especially when considering its strong free cash flow yield, as indicated by the adjusted P/E ratio of 7.35 for the last twelve months as of Q4 2024. The company's dividend yield stands out at 9.51%, showcasing its commitment to returning value to shareholders, a practice it has maintained for 14 consecutive years.
InvestingPro Tips highlight that while six analysts have revised their earnings downwards for the upcoming period, reflecting the challenges Kohl's is facing, the company's significant dividend payments and its ability to remain profitable over the last twelve months are key factors for investors to consider. Moreover, the stock's recent price volatility and the decline over the past week and three months may present opportunities for investors looking for potential bargains in the retail sector. For those seeking a deeper dive into Kohl's financials and future outlook, InvestingPro offers additional tips that could further inform investment decisions. To access these insights and more, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
It's also worth noting that Kohl's is set to announce its next earnings date on August 20, 2024, which will be a critical moment for investors to assess the company's progress on its turnaround efforts. The fair value estimates provided by analysts and InvestingPro stand at $24 and $21.62 respectively, suggesting that the current market sentiment has yet to fully reflect the underlying value of Kohl's shares.
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