Kohl's shares experienced a significant drop of 26% on Thursday.
Kohl's shares experienced a significant drop of 26% on Thursday.
Kohl's Corporation (KSS 0.64%) took a significant hit on Thursday morning, plummeting 26.3% by 10:15 a.m. ET, following the revelation of a substantial net loss instead of the anticipated profit.
For the first quarter, analysts projected Kohl's to generate a profit of $0.04 per share on $3.3 billion in sales. These predictions represented decreases from Kohl's Q1 2023 report, but the reality was even more disheartening. Kohl's reported no profits at all, posting a loss of $0.24 per share. Sales unfortunately fell short as well, coming in at $3.2 billion.
Kohl's Q1 Performance
Despite these challenges, Kohl's managed to enhance its gross profit margin by 0.5 percentage points to 39.5%, and it disposed of 13% of its stock, a commendable task for a physical retail store. Kohl's further managed to reduce SGA spending by 0.8%.
These cost-cutting measures, however, were unable to compensate for a 5% year-over-year decline in sales. Consequently, SGA costs as a proportion of sales increased, resulting in a halving of Kohl's operating profits. In essence, Kohl's Q1 loss erased its entire Q1 2023 profit of $0.13 per share.
Should Investors Sell Kohl's Stock?
On a more optimistic note, things might improve as the year progresses. Kohl's projects a sales decline of between 2% and 4% through 2024 end, which is a slight improvement from the 5% decline in Q1. Operating profit margins are anticipated to stay positive in the 3% range. On the bottom line, Kohl's assures a profit this year, with projected earnings ranging from $1.25 to $1.85 per share.
Even at the lower end of this range, Kohl's would still translate to a 16 price-to-earnings (P/E) stock. Given a robust $1.85 per share earnings, the P/E ratio plunges to only 11. Adding a generous 7.3% dividend yield – a figure Kohl's could maintain given expected profits – and Kohl's would require minimal growth to become a lucrative investment for the next five years.
If I were a Kohl's stockholder today, I wouldn't be inclined to sell.
In light of Kohl's financial struggles, some investors might question their decision to continue investing in the company. However, with a projected dividend yield of 7.3% and a promising P/E ratio of 11 for higher earnings, Kohl's stock could still be an appealing investment option for those seeking income and potential growth in the next five years.
Despite the disappointing Q1 performance and the anticipated sales decline, Kohl's is actively working on cost-cutting measures to improve its financial situation. The company disposed of 13% of its stock and managed to reduce SGA spending by 0.8%, showcasing its commitment to financial management despite the challenges.