Shares in Kohl’s Corp. plunged 17% after the department store chain said it experienced a sales decline last month as Covid-19 cases are on the rise and the company prepares for a softer start to the back-to-school selling season.
The stock dropped to $19.53 in early afternoon trading after Kohl’s (KSS) said it will need to plan its business “conservatively” in the second half of the year due to increased uncertainty around the coronavirus pandemic. In addition, the retailer warned that the back-to-school season has been impacted by the crisis as families navigate how their kids will return to school this year.
Meanwhile, Kohl’s net sales in the three months ended Aug. 1, dropped 23% to $3.21 billion year-on-year, but exceeded analysts’ estimates of $3.09 billion. The decline was due primarily to stores being open about 25% fewer days than last year and operating with limited hours. Digital sales increased 58% and made up 41% of net sales in the quarter, up from 20% last year.
On an adjusted basis, the company lost 25 cents per share in the second quarter, compared with the 83 cent loss expected by analysts.
“Our organization continues to navigate through a period of extraordinary change and uncertainty presented by the Covid-19 crisis. We reopened all of our stores with new safety and operating procedures, accelerated digital growth, and showed great discipline in managing inventory and expenses meaningfully lower,” Kohl’s CEO Michelle Gass said. “As we look ahead, we are planning for the crisis to continue to impact our business in the near-term.”
Gass added that the department store chain is “well-positioned to capitalize on evolving customer behaviors and the retail industry disruption, which we believe will drive long-term growth and increased market share.”
The retailer, which operates more than 1,100 stores in 49 states said it strengthened its financial position ending the reported quarter with $2.4 billion in cash, up from $2 billion at the end of the first quarter.
Shares in Kohl’s have nosedived some 61% so far this year as the department store chain earlier this year was forced to shut its stores down to help contain the fast spread of the coronavirus pandemic. (See Kohl’s stock analysis on TipRanks)
Last month, UBS analyst Jay Sole downgraded the stock to Sell from Hold and lowered the price target to $14 (29% downside potential) from $17.50, saying that “the market does not fully appreciate how much Covid-19 will permanently disrupt the retail landscape.”
“Covid-19 is accelerating the shift to online shopping and UBS Evidence Lab data suggests the effect will persist after the pandemic ends,” Sole wrote in a note to investors. “To deliver steady long-term growth, we believe brands can no longer rely on malls or department stores to drive traffic. Brands have to generate their own audiences and become destinations.”
Sole added that “even if department stores are able to replace a large piece of lost brick-and-mortar sales with online revenue, we doubt this mix shift will help margins”.
Overall, Wall Street analysts are sidelined on the stock. The Hold analyst consensus shows 5 Holds, 2 Sells and 1 Buy. The $20.14 average price target indicates a mere 2.4% upside potential in the shares in the coming 12 months.
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