Shares of department store chain Kohl’s (NYSE:KSS) jumped 5.4% in the morning session after strong earnings reports from apparel retailers, including Macy's, Ross Stores, and Gap. Macy's reported an impressive "beat and raise" quarter, which significantly blew past analysts' EPS expectations, driven in part by same-store sales and revenue beats. Full year guidance was also raised slightly across the board, from same-store sales to revenue to EPS, demonstrating confidence in its holiday season strategy amid macroeconomic challenges. Likewise, Ross Stores reported third quarter results with revenue outperforming Wall Street's estimates, driven by better-than-expected same-store sales growth and more new store openings. Gross margin also exceeded expectations. Lastly, Gap reported third quarter results that blew past analysts' revenue and EPS expectations, although its revenue declined in absolute terms. These beats were driven by better-than-expected same-store sales performance (analysts forecasted a 7% decline, and Gap posted a 2% decline). The success of these top retailers tells us that demand for apparel is healthy despite some fears about the consumer and despite some promotional activity.
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What is the market telling us:
Kohl's's shares are quite volatile and over the last year have had 34 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 2 days ago, when the company gained 9.1% on the news that retail stocks surged after bellwether Target reported third quarter results that blew past analysts' EPS expectations, driven by a small beat on revenue, better profitability, and a lower-than-expected tax rate. While same-store sales declined, the figure exceeded analysts' expectations. The company also generated healthy operating cash flows and repositioned its inventory into a healthier position. Next quarter's EPS guidance was slightly ahead of Consensus. Zooming out, we think Target’s quarter was an impressive one that should please shareholders, especially in light of some troubling consumer commentary from other companies.
Kohl's is up 2.5% since the beginning of the year, but at $25.16 per share it is still trading 27.6% below its 52-week high of $34.76 from February 2023. Investors who bought $1,000 worth of Kohl's's shares 5 years ago would now be looking at an investment worth $354.30.
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