2024-08-24 14:09:00 +0300

This Beaten-Down Stock Is Searching for a Lifeline. Has It Already Missed the Boat?

Rampant inflation continues to erase the limited recovery retailers made after the pandemic lockdowns forced stores to close and decimated their businesses. Kohl's (NYSE: KSS) is the latest victim of the pressure the retail industry is facing. Second-quarter revenue fell 8% to $4 billion and profits plummeted 63% to just $143 million because the company's middle-income customers are vanishing.

The department store also gutted its full-year guidance for the second time this year. It now expects sales to fall 5%-6% with earnings to be in the range of $2.80-$3.20 per share. Last quarter it reduced its full-year profit forecast to $6.45-$6.85 per share.

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Image source: Kohl's.

As it spirals down, though, Kohl's is hoping cosmetics and beauty care leader Sephora can throw it a lifeline. Stores that have a Sephora boutique inside them outperform those that do not, so Kohl's will be expanding this partnership to put a Sephora store-in-store in all 1,100 locations.

But we've seen this playbook once before and the outcome was not pretty. It will probably not work out any better this time.

Consumers are hunkering down

Kohl's is in trouble. Inflation is sapping the financial strength of consumers, and the belt-tightening means they're not making as many trips to the store and are buying fewer items when they do go.

CEO Michelle Gass told analysts Kohl's results reflect a middle-income customer that has become more cost-conscious and is feeling greater pressure on their budgets. Therefore, we are seeing customers make fewer shopping trips, spend less per transaction, and shift toward our value-oriented private brands.

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