Kohl's (KSS)

Department store chain Kohl’s (NYSE:KSS) met Wall Street’s revenue expectations in Q4 CY2024, but sales fell by 9.4% year on year to $5.40 billion. Its GAAP profit of $0.43 per share was 43.9% below analysts’ consensus estimates.

Company Overview

Founded as a corner grocery store in Milwaukee, Wisconsin, Kohl’s (NYSE:KSS) is a department store chain that sells clothing, cosmetics, electronics, and home goods.

Department stores emerged in the 19th century to provide customers with a wide variety of merchandise under one roof, offering a convenient and luxurious shopping experience. They played an important role in the history of American retail and urbanization, and prior to department stores, retailers tended to sell narrow specialty and niche items. But what was once new is now old, and department stores are somewhat considered a relic of the past. They are being attacked from multiple angles–stagnant foot traffic at malls where they’ve served as anchors; more nimble off-price and fast-fashion retailers; and e-commerce-first competitors not burdened by large physical footprints.

Department or general merchandise retail competitors include Macy’s (NYSE:M), Nordstrom (NYSE:JWN), and Dillard’s (NYSE:DDS).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $16.22 billion in revenue over the past 12 months, Kohl's is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only a finite number of places to build new stores, making it harder to find incremental growth. For Kohl's to boost its sales, it likely needs to adjust its prices or lean into foreign markets.

As you can see below, Kohl's struggled to generate demand over the last five years (we compare to 2019 to normalize for COVID-19 impacts). Its sales dropped by 4.1% annually as it didn’t open many new stores and observed lower sales at existing, established locations.

This quarter, Kohl's reported a rather uninspiring 9.4% year-on-year revenue decline to $5.40 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to decline by 6.2% over the next 12 months, a slight deceleration versus the last five years. This projection doesn't excite us and suggests its products will see some demand headwinds.

Number of Stores

A retailer’s store count influences how much it can sell and how quickly revenue can grow.

Kohl's listed 1,177 locations in the latest quarter and has kept its store count flat over the last two years while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Kohl’s demand has been shrinking over the last two years as its same-store sales have averaged 5.6% annual declines. This performance isn’t ideal, and we’d be concerned if Kohl's starts opening new stores to artificially boost revenue growth.

In the latest quarter, Kohl’s same-store sales fell by 6.7% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Kohl's has good unit economics for a retailer, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 40.2% gross margin over the last two years. Said differently, Kohl's paid its suppliers $59.82 for every $100 in revenue.

In Q4, Kohl's produced a 35.6% gross profit margin, in line with the same quarter last year and exceeding analysts’ estimates by 8.7%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Kohl's was profitable over the last two years but held back by its large cost base. Its average operating margin of 3.4% was weak for a consumer retail business. This result is surprising given its high gross margin as a starting point.

Analyzing the trend in its profitability, Kohl’s operating margin decreased by 1.4 percentage points over the last year. Kohl’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q4, Kohl's generated an operating profit margin of 2.3%, down 2.7 percentage points year on year. Since Kohl’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Kohl's, its EPS declined by 26% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q4, Kohl's reported EPS at $0.43, down from $1.68 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Kohl’s full-year EPS of $0.98 to grow 29%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Kohl's has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 2.3% over the last two years, slightly better than the broader consumer retail sector.

Taking a step back, we can see that Kohl’s margin dropped by 2.3 percentage points over the last year. This decrease warrants extra caution because Kohl's failed to grow its same-store sales. Its cash profitability could decay further if it tries to reignite growth by opening new stores.

Kohl’s free cash flow clocked in at $497 million in Q4, equivalent to a 9.2% margin. The company’s cash profitability regressed as it was 2.7 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Kohl's historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.4%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Kohl’s $7.16 billion of debt exceeds the $134 million of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $1.25 billion over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Kohl's could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Kohl's can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We were impressed by how significantly Kohl's blew past analysts’ gross margin expectations this quarter. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $8.45 immediately following the results.

Updated: May 16, 2025 at 10:31 PM EDT

When considering an investment in Kohl's, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We see the value of companies helping consumers, but in the case of Kohl's, we’re out. For starters, its revenue has declined over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its shrinking same-store sales tell us it will need to change its strategy to succeed.

Kohl’s P/E ratio based on the next 12 months is 7.1x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $9.10 on the company (compared to the current share price of $8.44).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.