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Kohl’s Beats Expectations in Q2 But Shares Drop Anyway

Department store retail chain Kohl’s reported second quarter earnings that beat expectations and also upped its guidance but despite all this, shares still dropped more than 4%.

“Kohl’s posted a solid second quarter, benefiting from solid inventory management with inventories per store down approximately 8% and gross margins up 42 basis points,” said Christina Boni, a Moody’s vice president.

She continued, “The major department stores that have performed well have continued to focus on speed to market and inventory efficiency, which are critical to improving the customer experience as well as profitability.”

On the company’s partnership with Amazon, CEO Michelle Gass stated, “So, we’ve been in this pilot now for about nine months … for both parties, we’re really pleased with the partnership … and customer response.” Amazon and Kohl’s are planning to expand the partnership to stores in Milwaukee. Currently Kohl’s has over 100 stores offering free Amazon returns.

“We feel really good about the customer experience that we’ve created,” added Gass.

“This is a big deal for us and Amazon … we want to make sure that we optimize and get it right,” she explained. “It’s a frictionless experience. We’re getting really great feedback from customers. You know, all elements have to work … before any decisions are made.”

“The operations have to work, the financials have to work … so we are doing our best to really understand and dig deep before any decision is made going forward,” Gass remarked about working more with Amazon.

“What excites [us] most about the story is the company’s potential pipeline of multi-year traffic drivers, including its Amazon Returns partnership and subleasing excess space to other high-frequency concepts,” Gordon Haskett analyst Chuck Grom said.

For the second quarter, Kohl’s reported profit soaring 40.4 percent to $292 million, or $1.76 per share. This is compared with $208 million, or $1.24 a share, a year ago. Analysts expected earnings of $1.64 a share. Revenue moved up 4 percent to $4.57 billion, which was also better than the $4.26 billion forecast by analysts.

Sales at Kohl’s stores opened for at least 12 months saw growth of 3.1 percent, compared to the 2.7 percent increase that analysts were expecting.

Kohl’s also increased its outlook for the full year and now expects to earn between $4.96 and $5.36 per share. Previously the company had projected $4.86 and $5.31 a share. Analysts were expecting earnings per share of $5.39.

Gass said during the earnings call, “I am confident that the strategies we have in place along with an organization that is operating with great speed, agility, and innovation will position us for long-term sustainable growth. I would like to thank the entire organization for their outstanding level of execution this quarter, and their tremendous commitment to the health and success of the business.”

Shares have jumped more than 111 percent over the past 12 months.

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