SHOP TALK

Kohl's posts a strong quarter, but same-store sales growth mostly came from a calendar change

Milwaukee Journal Sentinel

Kohl's Corp. on Tuesday reported a second consecutive quarter of strong financial results, with sales at established stores up 3.6 percent.

Kohl’s Corp. on Tuesday logged another positive quarter, but a large increase in sales at established stores came not from a big surge in business, but mainly because the retailer shifted its calendar.

In the early-morning news release announcing its financial results for the first quarter, Menomonee Falls-based Kohl’s said same-store sales — a key measure of retail performance — were up 3.6 percent from the previous year.

That’s a strong gain. In fact, it’s one of the company’s three largest since the beginning of 2012, a period in which same-store sales usually have been negative or up only slightly. Further, it follows a whopping 6.3 percent year-over-year increase for the critical fourth-quarter holiday season.

On the heels of the release, Kohl’s shares jumped in pre-market trading Tuesday, said Brian Yarbrough, an analyst with Edward Jones in St. Louis.

But later, speaking to analysts on a conference call, Kohl’s chief financial officer Bruce Besanko estimated that most of the increase in same-store sales was due to a change in the company’s calendar for reporting its results.

In 2017, Kohl’s first quarter began on Jan. 29 and ended on April 29. This year, the first quarter began on Feb. 4 and ended on May 5.

Both quarters contained 13 weeks, but the different start and end dates matter.

“This gets into the nitty gritty of retail reporting,” Robert W. Baird & Co. Inc. analyst Mark Altschwager said by email, “but essentially the 13-week quarter (in 2018) lost a low-volume week in January and gained a higher volume week in early May.”

The week in early May included a popular sale event, Altschwager added.

While Kohl’s enjoyed a more-advantageous first-quarter calendar in 2018, the weather was worse than last year’s, Besanko said. He estimated that unfavorable weather knocked about 1.0 percent off the same-store sales gain.

In any event, Kohl’s share price tumbled after the conference call and the explanation of the calendar shift, which is expected to undercut results in the third and fourth quarters. On a day when the S&P 500 lost 0.3 percent, Kohl's stock closed at $60.61, down $4.86, or 7.4 percent.

“The numbers looked great on the surface (Tuesday) until they delved into the details,” Yarbrough said.

But both he and Altschwager said Kohl’s is doing good things in a difficult environment for traditional retailers.

The company posted its third consecutive quarter of year-over-year gains in same-store sales, the profit margin was strong, and Kohl’s increased its estimate on earnings for the full year, Altschwager said.

“No matter which way you slice it, this was a solid report,” he said.

As mainstream retailers struggle with intensified competition from online merchants, Kohl’s has won kudos for experiments such as its alliance with Amazon and plans to reduce the size of some stores and lease the space to discount grocer Aldi.

“Kohl’s is emerging as a long term survivor in a rapidly evolving retail landscape,” Altschwager said. “They are positioned to capture some market share as weaker competitors exit.”

For the three months ended May 5, Kohl’s earned $75 million, up 14 percent from the $66 million the firm netted a year ago. Earnings per share totaled 45 cents, compared with 39 cents in the first quarter of 2017.

Excluding a one-time loss linked to the payoff of debt, Kohl’s earned $107 million in the most recent period, or 64 cents a share. That number, however, was boosted by the effects of the tax reform act, which helped cut Kohl's quarterly tax bill by $21 million.

Revenue totaled $4.2 billion, up 3.5 percent from a year ago.

Tuesday’s earnings report was the first under newly installed CEO Michelle Gass.

Gass, a former Starbucks executive who came to Kohl’s in 2013, succeeded Keven Mansell as CEO last week. Mansell retired after 36 years with Kohl’s, including the last 10 as its top executive.