Jefferies Cautious Ahead Of Kohl's Q3 Results, Notes 'Warm Weather Likely A Near-Term Detriment'

Shares of Kohl's plunged to a new 52-week low of $42.19 on Wednesday as investors and traders have a lower level of confidence in the company heading into its third-quarter report on Thursday morning.

Daniel Binder of Jefferies commented in a note that Kohl's stock has become "washed out" with buy-side expectations expecting a flat to down 1 percent comp and sell-side estimates also coming down. The analyst cited the "unseasonably warm weather" as being a "near-term detriment" on sentiment, especially when considering the retailer is "the most weather sensitive" name under his coverage.

Related Link: Industry Expert Says Kohl's Will Struggle To Attain Growth

Drivers

Binder continued that Kohl's has already highlighted several initiatives to drive sales, including:

• 1. Doubling its loyalty member base
• 2. Focus on the active and wellness category
• 3. Price elasticity work by brand and product
• 4. Faster cycle times in juniors business
• 5. New vendor relationships

Binder noted that Kohl's management remains positive on its initiatives, but a sales slowdown seen across the entire sector adds to the uncertainty moving forward.

"Unless Q3 is significantly worse, we tend to think Kohl's shares will trade in a narrow range at these levels," Binder wrote. "We do not think management will get a lot less optimistic on the Q4 outlook given its plans. Frankly, this may not help the stock near-term as investors could view this as another set-up for a Q4 miss."

Estimations

With that said, Binder is estimating Kohl's will earn $0.66 per share in the third quarter on revenue of $4.392 billion on flat same-store sales. By comparison, the Estimize community (based on 29 estimates) is projecting an earnings per share of $0.71 on revenue of $4.433 billion, while the Wall Street consensus estimate is looking for an earnings per share of $0.69 on revenue of $4.436 billion.

Shares remain Buy rated with a price target lowered to $57 from a previous $61.

Image Credit: By hattiesburgmemory (Kohl's Uploaded by AlbertHerring) [CC BY 2.0], via Wikimedia Commons