Can Kohl’s See a Turnaround?

With shares of Kohl’s (NYSE:KSS) trading around $52, is KSS an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Kohl’s operates department stores in the United States. Its stores offer private, exclusive, and nationally branded apparel, footwear, and accessories for women, men, and children; soft home products, such as sheets and pillows; and housewares targeted at middle-income customers. As of June 14, it operated 1,155 stores in forty-nine states. The company also provides online shopping through its website.

Kohl’s today reported results for the quarter ended May 3, 2014. Kevin Mansell, Kohl’s chairman, president and chief executive officer, said, “We did not achieve our first quarter sales goals, but we were encouraged by the improvement in sales as the quarter progressed. Our teams managed our inventory levels appropriately and expenses were controlled throughout the organization during the quarter.”

T = Technicals on the Stock Chart are Weak

Kohl’s stock has not made much progress in the past several years. The stock is currently pulling back and may need time to consolidate. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Kohl’s is trading below its rising key averages which signal neutral to bearish price action in the near-term.

KSS

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Kohl’s options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Kohl’s options

29.83%

30%

28%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Steep

Average

July Options

Steep

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral to bearish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Kohl’s’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Kohl’s look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-9.09%

-6.95%

-10.99%

4%

Revenue Growth (Y-O-Y)

-3.07%

-3.83%

-1.02%

2%

Earnings Reaction

-3.37%*

2.38%

-8.08%

5.25%

Kohl’s has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Kohl’s’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Kohl’s stock done relative to its peers, Target (NYSE:TGT), Wal-Mart (NYSE:WMT), TJX Cos. (NYSE:TJX), and sector?

Kohl’s

Target

Wal-Mart

TJX Cos.

Sector

Year-to-Date Return

-7.40%

-8.35%

-2.49%

-8.99%

-5.80%

Kohl’s has been a relative performance leader, year-to-date.

Conclusion

Kohl’s is a department store retailer that operates locations across the United States. The company reported first quarter results that did not achieve first quarter sales goals. The stock has not made significant progress in recent years and is now pulling back. Over the last four quarters, earnings and revenues have been decreasing, which has produced mixed feelings among investors. Relative to its peers and sector, Kohl’s has been a relative performance leader year-to-date. WAIT AND SEE what Kohl’s does this quarter.

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