On Wednesday, Citi adjusted its outlook on Kohl\'s Corp (NYSE:KSS), reducing the retailer\'s shares price target to $24 from the previous $27, while maintaining a Neutral rating on the stock. The revision follows Kohl\'s fourth-quarter earnings, which surpassed expectations on earnings per share (EPS) due to improved gross margins and overhead cost management. However, concerns were raised regarding the company\'s continuous sales struggle.
Kohl\'s reported a better-than-anticipated fourth-quarter EPS, attributed to enhanced gross margins and controlled selling, general, and administrative expenses (SG&A). Despite this, sales figures remained a point of concern.
Kohl\'s has projected a flat to 2% increase in comparable store sales for fiscal year 2024, an outlook that appears optimistic given the company\'s recent performance, with comparable sales down 5% in fiscal year 2023 and 6% in fiscal year 2022. Citi\'s analysis suggests a more conservative estimate, modeling a 0.5% decline in comparable sales.
The retailer\'s efforts to revitalize sales through various initiatives have yet to yield substantial results. Previous strategies such as accepting Amazon (NASDAQ:AMZN) returns and introducing Sephora shops within Kohl\'s locations have not sufficiently countered broader sales declines across the store.
Notably, the growth in the Sephora segment suggests that the rest of the store experienced an approximate 8% downturn. This indicates not only an absence of positive spillover to other categories but also a more significant decline than the overall comparable store sales prior to the Sephora partnership.
Additionally, Kohl\'s faced an unexpected setback in its credit segment. While the company has effectively managed expenses and inventory, driving profits remains challenging without a stronger contribution from sales. Citi\'s commentary reflects skepticism about Kohl\'s ability to meet its sales targets and suggests that the company\'s initiatives may not be enough to reverse the trend of declining sales.
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