Estimates have been rising for Kohl’s Corporation (KSS) after the company reported better than expected comparable sales for the month of June.
The retailer is coming off a strong first quarter too, with management raising its earnings guidance for the full year.
Kohl’s has a solid balance sheet and strong free cash flow which it has used to recently buy back shares and initiate a regular quarter dividend. It currently yields 1.8%.
Valuation is attractive too with shares sporting a PEG ratio of 1.1.
Strong June Sales
Kohl’s reported exceptionally strong comp sales for the month of June on July 7. Total sales rose 9.2% thanks to a impressive 7.5% increase in comparable store sales.
Year-to-date, total sales are up 4.4% on comparable store sales growth of 2.6%.
First Quarter Results
Kohl’s reported better than expected results for the first quarter of 2011 back on May 12. Earnings per share came in at 73 cents, a penny above the Zacks Consensus Estimate. It was a 14% increase over the same quarter in 2010.
Net sales rose 3.1% to $4.2 billion, driven by a 1.3% increase in comparable store sales.
The gross margin held steady at 38.1%. This is a good sign considering the problems other retailers are facing with rising input costs. The operating margin held steady too at 8.7% of net sales.
Raised Guidance
It’s always good to see a company raise its guidance coming off a strong quarter. That’s exactly what management at Kohl’s did after reporting better than expected Q1 results. The company now expects to earn between $4.25 and $4.40 per share, up from previous guidance of $4.05 to $4.25 per share.
Analysts raised their estimates off the solid quarter, and off the strong June sales report, sending the stock to a Zacks #2 Rank (Buy).
Based on current consensus estimates, analysts are projecting strong growth from the company over the next two years. The 2011 Zacks Consensus Estimate is $4.38 per share, corresponding with 20% EPS growth. The 2012 consensus estimate is 16% higher at $5.08.
Fundamentals
Kohl’s has a solid balance sheet with $1.7 billion in cash and equivalents as of April 30. Its debt to equity ratio is a very reasonable 21%.
The company initiated a regular quarterly dividend of 25 cents per share earlier in the year. It currently yields 1.8%. The company also spent $445 million in the quarter repurchasing shares.
The valuation picture looks attractive with shares trading at just 12.8x forward earnings, a significant discount to the industry average of 16.4x. Its PEG ratio is a very reasonable 1.1 based on a 5-year growth rate of 12.0%.
The company’s price to book ratio of 2.0 is essentially in-line with its peers.
The Bottom Line
Although some mid-priced retailers are struggling to combat rising input costs and keep customers coming through the doors, Kohl’s appears to be doing quite well. Comp sales are up, management recently raised guidance, and analysts have been revising their estimates higher.
The company has also been buying back shares and recently initiated a regular quarterly dividend. With strong fundamentals and solid double-digit EPS growth projections, shares look attractive at just 12.8x forward earnings.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
KOHLS CORP (KSS): Free Stock Analysis Report
Zacks Investment Research
