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Kohl's Corp(KSS-N)

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Here's Why Kohl's Stock Popped Today

Motley Fool - Wed May 24, 10:11AM CDT

What happened

Shares of retailer Kohl's(NYSE: KSS) popped on Wednesday after the company reported its latest quarterly results. As of 10:15 a.m. ET today, the stock was up about 9%.

So what

For the fiscal first quarter of 2023, which ended in April, Kohl's had net sales of $3.4 billion, a 3.3% year-over-year drop. But by improving both its gross margin and its operating margin, the company was able to earn $14 million, just like it did in the prior-year period, even though sales were down.

Both the top and bottom lines were better than what analysts had expected. And outperforming expectations is a big reason the stock is up today.

Now what

First-quarter results appear to be what Kohl's management expected. For evidence, consider that it maintained its full-year 2023 guidance in every regard, implying that the first quarter tracked with internal forecasts.

For fiscal 2023, management continues to expect a 2% to 4% year-over-year drop for net sales, an operating margin of 4%, and diluted earnings per share of $2.10 to $2.70.

At the low end of that guidance, Kohl's stock trades at about 10 times its forward earnings, which might entice value investors. Moreover, management is still paying a dividend of $2 annually, which gives the stock a yield of about 10%.

But investors need to keep in mind that Kohl's stock frequently trades this cheaply, and it has lost to the market over the long term. Moreover, results may have beat expectations in the first quarter, but that appears to be a general trend in retail right now and not necessarily a strength unique to Kohl's.

Therefore, value investors will need to determine what can help the stock gain from here considering it has underperformed in the past when it was this cheap.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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