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What to Expect from Kohl’s in the First Quarter

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Part 2
What to Expect from Kohl’s in the First Quarter PART 2 OF 5

What to Expect from Kohl’s Margins and Earnings in Q1

Analyst projections

Kohl’s (KSS) is slated to announce first-quarter results on May 22. Wall Street estimates the company will report a gross margin of 36.5% compared to 36.4% in the corresponding quarter last year. Analysts expect SG&A (selling, general, and administrative) expenses to be up ~5% to $1.0 billion. Operating margin is expected to be up 4.5%, down 30 basis points on a YoY (year-over-year) basis. Analysts expect adjusted EPS growth of 28.2% to $0.50 for the first quarter.

What to Expect from Kohl&#8217;s Margins and Earnings in Q1

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Kohl’s management has projected gross margin to be at the lower end of the 2018 gross margin range for the first quarter. For 2018, Kohl’s has guided for gross margin expansion of five to ten basis points over the 2017 gross margin of 36.1%.

For the first quarter, the company’s SG&A expenses are likely to increase in the mid-single digits owing to higher costs related to investments in omnichannel efforts and cloud migration. As a result, Kohl’s expects to report EPS in the range of $0.45–$0.50 as against the $0.39 it posted in the first quarter of 2017.

Past performance

In the fourth quarter, Kohl’s gross margin expanded 40 basis points to 33.8%. The company’s SG&A expenses as a percentage of its sales improved 40 basis points to 21.5%. Its operating margin was 8.4% compared to the 7.6% margin it reported in the fourth quarter of 2016. Despite higher shipping costs, tight inventory management cushioned margin growth.

In the fourth quarter, Kohl’s adjusted EPS came in at $1.87, topping analysts’ consensus estimate of $1.77. Adjusted EPS were up 29.9% year-over-year driven by higher revenue. On a reported basis, its EPS rose 95.1% to $2.81. Its bottom line benefited from tax reforms, which added $0.82, and an additional week’s contribution of $0.10.

A look at other department stores’ EPS expectations

For the first quarter, analysts expect Macy’s (M) adjusted EPS to be up 54.2% to $0.37 on a YoY basis. On the other hand, JCPenney’s (JCP) adjusted loss per share is expected to narrow to $0.23 as against loss per share of $0.30 reported in the first quarter of 2017.

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