Kohl’s Corp posted third-quarter results that saw declines in net income and net sales, prompting Standard & Poor’s to downgrade the retailer’s corporate credit rating to “BBB” from “BBB+”.
The ratings agency said the downgrade was warranted because Kohl’s “reported operating performance that is weaker than our previous expectations.” S&P also said the negative comparable-store sales trends is “unlikely to improve meaningfully in the near term.” The outlook is stable, reflecting a belief that sales trends should begin to stabilize in 2015, S&P said.
For the three months ended Nov. 1, net income fell 19.8 percent to $142 million, or 70 cents a diluted share, from $177 million, or 81 cents, a year ago. The company also said net sales for the period slipped 1.6 percent to $4.37 billion from $4.44 billion. Comparable-store sales were down 1.8 percent, on top of the 1.6 percent decrease a year ago. Wall Street analysts’ consensus estimate was 74 cents on sales of $4.41 billion.
Wesley S. McDonald, chief financial officer, said on a call to analysts that, “Transactions per store were down 2.6 percent, while average transaction value was up 0.8 percent.” He said the gross margin rate was 37.2 percent, or 28 basis points, lower than a year ago, due in part to increased penetration of national brands.
Kevin Mansell, chairman, president and chief executive officer, said accessories and beauty, footwear and men’s were slightly negative for the quarter, while women’s and home under performed. Children’s continues to outperform other businesses.
Mansell said, “Looking forward, we believe that we will run a positive comp between 2 percent and 3 percent in the fourth quarter.”
He explained that the range would get the company to the low end of its projected guidance for 2014. At the end of October, Kohl’s said it expected 2014 diluted earnings per share to be at the low end of prior guidance, which it had said was forecasted at between $4.05 to $4.45 a diluted share.
Stifel analyst Richard Jaffe reiterated his “Buy” rating on the stock. He said that while near-term uncertainty exists, “we remain hopeful longer term” due to the loyalty program that has been rolled out, half of all beauty departments in the stores have been upgraded and new marketing efforts and merchants should begin to have a significant impact.
In New York Stock Exchange trading, shares of Kohl’s slipped 3.2 percent to $56.07 on the day.
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