Shares of department store retailer Kohl’s (NYSE:KSS) took a drop on Thursday after being downgraded by a Citigroup analyst who says the stock has run too far and too fast.
Citigroup analyst Paul Lejuez has downgraded shares from “buy” to “neutral” and with how much the stock has run recently, it is now time to “step aside.”
Citing fears of weak traffic, Lejuez noted, “Outside of a major announcement of their partnerships expanding (which could help traffic), Kohl’s still has a challenge to drive traffic on its own. Overall traffic (measured by transactions) was down in the first quarter excluding the benefit of the shift in weeks. This was tolerable at $60 to $65. But with the stock at about $76, we believe the risk reward is balanced.”
“To be clear, this is not a head for the exits call,” Lejuez explained. “The company is in the process of testing partnerships with grocery stores with its standard to small initiative. It also has the ongoing partnership with Amazon in 86 stores. Both of these initiatives seem promising and we believe it is possible the Amazon partnership could be expanded.”
“But it also seems that the market may already be assuming the partnership grows, leaving more risk to the downside if it does not,” he added.
The firm has a $75 price target on the stock.
It was at the end of May that Wisconsin-based Kohls had posted its fiscal first quarter earnings with same store sales as well as earnings beating what analysts had been expecting. Earnings per share at 64 cents beat the 50 cents expected and revenue at $4.21 billion was higher than the $3.95 billion expected. Same store sales with a growth of 3.6% was also better than the 2.7% that analysts were waiting for.
CEO Michelle Gass stated during the earnings call, “We had a strong start to 2018, and I am very pleased with how the team has sustained our momentum coming into the year. We achieved our third consecutive quarter of comparable sales growth and our ninth consecutive quarter of inventory reductions. Our ongoing focus on the key pillars of our greatness agenda and our two key priorities continue to deliver results this quarter.”
Though the company initially saw a gain of 6% in pre market trading on the earnings report, shares took a turn and closed down over 7% that day.
Looking ahead, the company also raised its earnings forecast for the year. Previously Kohl’s (NYSE:KSS) projected earnings in the range of $4.95 to $5.45 a share. Now the numbers are $5.05 to $5.50 a share.