Kohl's Earnings: Dismal Results and Outlook Do Not Inspire Confidence, but Shares Are Undervalued

No-moat Kohl’s reported an unexpected net loss in the first quarter and lowered full-year guidance significantly, causing its shares to plummet more than 20%. The change in guidance from only 10 weeks ago is especially worrisome, as it suggests that real improvement in Kohl’s results will take longer than CEO Tom Kingsbury anticipated. While he highlighted initiatives like Sephora and new apparel offerings, there is little evidence that they are driving customer traffic and conversion so far. We expect to reduce our $50 fair value estimate by a mid-single-digit percentage, but view shares as very undervalued. While confidence in Kohl’s prospects is unquestionably low, we believe that its problems are more than reflected in its valuation and that it is at no risk of falling into financial distress.