Investing to Wealth

Kohl's (NYSE: KSS) delivered its Q4 report on Thursday after the bell. As bad as the retail sector is, the company actually managed to beat expectations. The call was for $1.03 per share according to Reuters Estimates. The retailer managed to beat by seven pennies with $1.10 per share.

Should we be impressed? I don't think so. First, the bottom line dropped by 16%. Net sales retreated by well over 4%. And same-store sales? Ugh! They declined by over 9%. It's the comps that really tell the tale in retail, and while many people argue over the exact value of this metric for shareholders. I'd say that, in this case, Kohl's weak comps are predicting a tough year.

The chain obviously had a tough Christmas like just about every other mall entity, and with consumers continuing to retrench, I'm not sure that Kohl's can convince enough of them to spend more at their stores this year than they did last year. Just not happening.

Cash from operations did jump nicely, though: it rose almost 38% for the full fiscal year. And management generated a good chunk of free cash flow. Not surprisingly, capital spending declined in 2008.

The after-hours reaction to the news wasn't too positive. The stock shed 4% of its value. Interestingly enough, though, I see that the shares are not bumping up against their 52-week low. I think the stock should probably be lower than where it is now, and I would not look to buy at the current level, as I see plenty of room for downside action considering that the 52-week low is close to $24. For one thing, guidance came in well below Wall Street's wishes. For another, we just don't know where this economic crisis is going to lead.

I'm still in a very bearish mood, and if I absolutely had to look at retail stocks, I'd start with Wal-Mart (NYSE: WMT) and Target (NYSE: TGT). Of course, bear in mind that I'd look at them. I wouldn't necessarily buy either of them just yet...

Disclosure: I don't own any company mentioned; positions can change without notice.

Filed under: Earnings reports, Wal-Mart (WMT), Target Corp. (TGT), Kohl's Corp (KSS)

Kohl's has cool Q4, but guidance is not fashionable at all originally appeared on BloggingStocks on Fri, 27 Feb 2009 07:00:00 EST. Please see our terms for use of feeds.

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