What Will Kohl’s Do After This Earnings Release?

With shares of Kohl’s (NYSE:KSS) trading around $53, 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 49 states. The company also provides online shopping through its website.

Kohl’s reported third-quarter earnings Thursday morning, and, like Wal-Mart (NYSE:WMT), the company’s results showed that the retail landscape is still challenging leading up to the holiday shopping season. Kohl’s earnings came in at 81 cents per share, down 10 cents from a year earlier. Kohl’s revenue fell 1 percent, to $4.44 billion. Kohl’s and Wal-Mart both plan to open their stores early for Black Friday this year. Analysts believe that this holiday season could be a big strain for retailers, as they will be forced to offer large discounts in order to attract shoppers, according to The Wall Street Journal.

T = Technicals on the Stock Chart Are Mixed

Kohl’s stock has not made much progress in the past several years. The stock is currently pulling back from highs for the year, so it may need time to stabilize. 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 between its rising key averages, which signals neutral 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

27.89%

6%

4%

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

December Options

Flat

Average

January Options

Flat

Average

As of Thursday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish 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 Increasing 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?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

N/A

4%

4.76%

-8.62%

Revenue Growth (Y-O-Y)

N/A

2%

-1.04%

5.38%

Earnings Reaction

-7.54%*

5.25%

4.73%

-1.09%

Kohl’s has seen increasing 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), and TJX Cos. (NYSE:TJX) — and sector?

Kohl’s

Target

Wal-Mart

TJX Cos.

Sector

Year-to-Date Return

25.31%

12.35%

15.78%

48.06%

26.37%

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 third-quarter earnings, and, like Wal-Mart, the company’s results showed that the retail landscape is still challenging leading up to the holiday shopping season. The stock has not made significant progress in recent years and is now pulling back from highs for the year. Over the last four quarters, earnings and revenues have been rising. However, investors have had mixed feelings about recent earnings announcements. Relative to its peers and sector, Kohl’s has been a relative performance leader year-to-date. Look for Kohl’s to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More from The Cheat Sheet