While Wal-Mart Stores, Inc. (NYSE: WMT) keeps racking up sales as the king of retail in a depression, competitors certainly don't want to lose out on holiday sales. In fact, with such a bleak holiday shopping season predicted by multiple market pundits, some retailers are trying to divert those upcoming Wal-Mart shoppers into their own shoppers. But how? Kohl's Corp. (NYSE: KSS) held a three-day Christmas sale that actually ends today -- the day before Black Friday. The department store-style retailer offered price cuts to the tune of 40% during the last three days in an attempt to steal some of Wal-Mart's customers. You know, the ones who will brave chilly temperatures and 5:00 a.m. waiting lines come Friday morning. The same goes for retailer Macy's, Inc. (NYSE: M). Macy's planned its biggest discounts last week, trying to pull in Black Friday shoppers a full week early.
Did the strategy work? This year would be a hard year to measure since not all things are equal. Shoppers are reluctant to pull out the purse or wallet, the stock market is psychotic, home sales are at a standstill, unemployment is rising fast and the economy is circling the average American like a shark.
But then again, this is why competitive pressures have surfaced: retailers are having to fight tooth and nail for every shopper dollar this year, and all the stops must be pulled out. A Gallup poll recently indicated that Americans will spend an average of $616 on gifts this year, a 29% drop from 2007. When a third of the holiday retail dollars go away, it s bare-knuckled fight among retailers - nothing less.
Kohl's Corp (NYSE: KSS) reported Q3 earnings on Thursday after the bell. I didn't like what I saw. I couldn't find anything in there that would make me think the stock is a buy at this time. Well, there were a couple good points, but they didn't sway me.
Net revenues were pretty much flat at $3.8 billion. The bottom line came in at $0.52 per diluted share. Last year at this time, Kohl's delivered $0.61 per diluted share in net income. That's a 15% drop, and that isn't good, even if earnings beat expectations by a penny.
So, we got a flat top line and a declining bottom line. Want some more bad news? This is probably the worst metric: same-store sales decreased well over 6% for the quarter. Plus, they declined 6% for the nine-month period. As can be seen, things are getting worse for Kohl's. Same-store sales are indeed a key measure of a retailer's strength, so even though management did well in terms of gross margin and operational cash flow (the latter took a big jump, moving up 175% due to changes in working capital relating to inventories), I can't find it within me to be even remotely bullish on this business.
This week, some apparel and accessory producers and retailers offer a look at how they've been doing between early summer's economic stimulus spending and the coming holiday season. While Polo Ralph Lauren Corp. (NYSE: RL) reported higher earnings last week, Coldwater Creek Inc. (NASDAQ: CWTR), Eddie Bauer Holdings Inc. (NASDAQ: EBHI), Kenneth Cole Productions Inc. (NYSE: KCP), and K-Swiss Inc. (NASDAQ: KSWS) all reported net losses as consumers pulled back on spending over the summer due to higher fuel prices and other economic worries. The expectations of analysts surveyed by Thomson Financial for such companies scheduled to report this week don't look much different; i.e., a bright spot or two among lower expectations overall.
Hip retailer Urban Outfitters Inc. (NASDAQ: URBN) is expected to post earnings 22.9% higher than a year ago, to $0.35 per share, on revenue of $475.9 million (+26.4%). The Philadelphia-based company already said that same-store sales in the quarter were 10% higher. Urban Outfitters has beat expectations in recent quarters, by 11.5% in the previous quarter, and analysts on average recommend buying URBN. Shares fell to a 52-week low of $16.61 per share on Friday, and are down 29.5% from a year ago. Other companies expected to report more modest earnings growth in the coming week include watch and accessory maker Fossil Inc. (NASDAQ: FOSL), retail giant Wal-Mart Stores Inc. (NYSE: WMT), and TJX Companies Inc. (NYSE: TJX), parent of such discount retail chains as T.J. Maxx and Marshalls. These three companies have tended to top analysts estimates in recent quarters, and Fossil and TJX ended the week near their 52-week lows.
While Los Angeles-based American Apparel Inc. (AMEX: APP) had a strong second quarter, the casual wear maker is expected to report $0.13 per share earnings for the third quarter, the same as in the year-ago period. And analysts anticipate that Kohl's Corp. (NYSE: KSS) will report that profits fell 16.4% to $0.51 per share on revenue of $3.9 billion (+1.9%). Though same-store sales for October fell 9%, the Menomonee Falls, Wis.-based company reaffirmed its third-quarter forecast. Kohl's has offered positive surprises in recent quarters, topping estimates by 5.6% in the previous quarter. The consensus recommendation remains to buy KSS. Shares have been climbing after reaching a 52-week low in late October, but are still down 32.8% from a year ago.
If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on KSS.
KSS opened this morning at $36.95. So far today the stock has hit a low of $36.74 and a high of $40.08. As of 10:15, KSS is trading at $39.37, up $1.21 (3.2%). The chart for KSS looks neutral and S&P gives KSS a 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $35 range.
J.C. Penney (NYSE: JCP) closed at $31.37 Friday. JCP is scheduled to report September sales data on October 8. JCP October option implied volatility of 83 is above its 26-week average of 54 according to Track Data, suggesting larger price movement.
Kohl's (NYSE: KSS) closed at $41.47 Friday. KSS is expected to report September sales data on October 8. KSS over all option implied volatility of 65 is above its 26-week average of 48 according to Track Data, suggesting larger price movement.
Dillard (NYSE: DDS) closed at $11.06 Friday. DDS is expected to report September sales data on October 8. DDS overall option implied volatility of 108 is above its 26-week average of 73 according to Track Data, indicating larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Give Kohl's (NYSE: KSS) credit for bravery. The Wall Street Journal reports (subscription required) that in the midst of a consumer slowdown that few observers believe will turn around anytime soon, the company opened 46 new stores. Today. CEO Kevin Mansell told the newspaper that "We've been in a period now for over a year where the customer is shopping less. You'd better start figuring out how you're going to take more from the other guy."
I like the way Mr. Mansell thinks. While competitors are battening down the hatches and closing stores, Kohl's is making an aggressive move to take market share. In addition, the company may be able to negotiate more favorable leases for new stores right now and when economic conditions rebound, as they always do, the company will be well-positioned.
Too many companies over-invest when times are good and then cut back when times get tough. That "buy high, sell low" strategy is the exact opposite of what works, and it's what's gotten the housing industry in so much trouble. Think about it: banks would lend money to anyone when homes were overpriced and now that bargains are available, you can't get a mortgage.
Kohl's strategy may not yield great results in the short-term, but it looks smart to me.
Kohl's Corporation (NYSE: KSS) is up over 7% as I write this. Wall Street is apparently infatuated by the company's Q2 numbers, issued on Thursday after the bell. On the surface, however, one might question why there's such an interest. After all, the top line increased only 4% and the bottom line actually decreased 7% to $0.77 per diluted share. And, more dishearteningly, same-store sales, a vital metric for retailers, fell well over 4%. In fact, for the six-month period, same-store sales declined well over 5%.
Here's what Wall Street seems to be thinking. The gross margin expanded from 38.9% to 39.6% in the quarter. In the six-month timeframe, the gross margin expanded from 37.9% to 38.2%. Also, management increased its earnings outlook for the fiscal year from a range of $2.95 to $3.15 per share to $3.02 to $3.18 per share. This guidance assumes declines in comps of between 2% and 4% for each of the next two quarters. Kohl's beat estimates by $0.04, according to Briefing.com. And cash from operations more than doubled over the last six months to roughly $874 million.
All of that is pretty impressive, so I guess I can understand the buying of the stock to some degree. I do see some things to be concerned about, though. While gross margins went up, operating margins went down. Plus, I don't like the declining comps in this case. And I have to wonder how the economy will treat Kohl's in the coming holiday season. I definitely wouldn't be in a rush to chase this stock, especially after the run-up today. As I've said in other pieces on retail investing, Wal-Mart Stores, Inc. (NYSE: WMT) and Target Corporation (NYSE: TGT) are businesses I'd look at first in this sector. However, one thing I do have to concede is that the stock has been very strong lately, so there may be a case to be made for capturing some momentum here. Still, if I'm going for momentum, I might go with retail businesses that have stronger brand equities (in my opinion, at least).
Disclosure: I don't own any company mentioned; positions can change at any time.
Even with the stimulus checks, retail sales numbers for June and July have been nothing to cheer about. And this coming week should provide another look at how things have been shaping up in the apparel and accessories arena. A number of companies are scheduled to release quarterly numbers, from upscale retailer Nordstrom to the parent of discounter TJ Maxx, from hipster Urban Outfitters to global giant Wal-Mart. Here's a look at what Wall Street is anticipating.
Analysts surveyed by Thomson Financial expect the following to report strong earnings growth when compared to the same period of the previous year.
Collective Brands (NYSE: PSS), operator of Payless ShoeSource and owner of the Stride Rite brand, reported Q1 earnings on Wednesday. Revenues increased 28% to $932 million. Pretty cool increase. Adjusting earnings per share for a litigation charge and an inventory issue, net income came in at $0.71 per share versus the $0.59 per share booked a year ago.
That's decent growth, but there are a couple things to consider here. First, the top line wasn't fully organic, as it includes the Stride Rite acquisition (remember that Payless ShoeSource bought out Stride Rite and became Collective Brands). Second, same-store sales did not confirm any sort of underlying healthy trend. Comps declined a nasty 6.5%. So, even though earnings expectations were beat by a wide margin according to MarketWatch (analysts seemed to think the shoe concern would do about $0.56 per share), I'm not fully impressed.
And let's go back to that litigation thing. The earnings release discusses the risk involved with an unfavorable ruling vis-a-vis the retailer's battle with Adidas. That's another strike against the company for me. From a price-action perspective, Collective Brands' stock has been rather weak as of late, and it currently sits much closer to the 52-week low than it does to the 52-week high.
On Thursday, Nordstrom Inc. (NYSE: JWN) and Kohl's Corp. (NYSE: KSS) both reported smaller-than-expected first-quarter profit declines as consumers continued to pull back their spending.
Luxury retailer Nordstrom said its profit fell 24% from the same quarter of last year to $119 million, or 54 cents per share. Revenue fell 4% from a year ago to $1.88 billion. Analysts surveyed by Thomson Financial had predicted Nordstrom would earn 49 cents per share on sales of $1.9 billion.
The company said same-store sales fell 6.5% for the quarter, below the expected 3% to 5% drop. The retailer said it expects same-store sales to fall 5% to 7% in the quarter, and 4% to 6% in the year.
For the current quarter, Nordstrom forecast a profit of 65 to 70 cents per share; analysts' forecast earnings of 69 cents per share. For the full year, Nordstrom cut its earnings outlook to $2.65 to $2.89 per share, from an earlier forecast for $2.75 to $2.90 per share. Analysts predict earnings of $2.76 per share.
By mid day Friday, shares of Nordstrom had gained $1.35, or 3.5%, from the open on Thursday. Shares have fallen 28.7% in the past year.
While Wal-Mart Stores, Inc. (NYSE: WMT) keeps racking up sales as the king of retail in a depression, competitors certainly don't want to lose out on holiday sales. In fact, with such a bleak holiday shopping season predicted by multiple market pundits, some retailers are trying to divert those upcoming Wal-Mart shoppers into their own shoppers. But how?
J.C. Penney
Give 
Even with the stimulus checks, retail sales numbers for June and July have been 
On Thursday, 
Waiting for the other shoe to drop: The looming credit crisis
Closing Bell: Dow down 7.7%; GE, YHOO, MS fall, PGI, MNT soar
Bet on T&A with J&J (JNJ)
