Kohl's: Can Strong Results Persist?

Marking its fourth consecutive quarter of positive same-store sales growth (up 3.1%) implies that initiatives surrounding localization, speed, and choice are resonating with consumers at

We don’t plan to materially alter our $59 fair value estimate, despite a strong second quarter at Kohl’s, which clocked 4% sales and 11% operating margin growth. Even with Kohl’s updated outlook for the year, which includes same-store sales of 0.5%-2% (from 0%-2% prior, versus our estimate of 1%) and earnings per share of $5.15-$5.35 (from $5.05-$5.50 and our $5.13 estimate), we don’t think this warrants a meaningful shift for either our second-half or long-term outlook. Over the next decade, we still anticipate pricing gains to be difficult given the categories the firm operates within, pressuring gross margin gains, and we believe Kohl’s will continue to spend on IT and store-based initiatives to defend its business, driving up SG&A expenses. Ultimately, this leads to operating margins that compress to just above 5%, around a 200 basis point drop from 2017, as we don’t anticipate secular headwinds will abate over our time frame.

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