Despite low gas prices and improving labor markets, consumers remain reluctant to spend. In addition to weak consumer spending, unusually warm weather also hurt many retailers. Weak holiday sales have forced some retailers to shrink their operations and focus on more promising operations like e-commerce.

Headquartered in Menomonee Falls, WI, Kohl’s Corp (KSS) operates about 1,200 stores across 49 states and an e-commerce site. Falling estimates sent the stock to a Zacks Rank #5 (Strong Sell).

Better-than-Expected Earnings but Weak Sales

The company reported better-than-expected earnings for Q4 2015 however revenues were short of consensus due to lower-than-expected comparable store sales.

Reported earnings of $1.58 per share, were slightly ahead of the Zacks Consensus Estimate of $1.55 but were down 14% from the prior-year quarter.Net sales were slightly short of the Zacks Consensus Estimate. Sales suffered, among other reasons, from low demand for cold-weather apparel and accessories in early November and January.

The company announced they will close 18 underperforming stores and also pilot a new smaller format of stores this year.

Before reporting results, the company had warned about lower-than-expected sales, saying “sales were very volatile and less than planned in the fourth quarter” and also lowered the outlook for fiscal 2015. Shares had lost almost 15% after the news.

Falling Estimates

Analysts have slashed their estimates for the company after weak results and downbeat guidance Zacks Consensus Estimates for the current and next fiscal year have fallen to $4.15 per share and $4.43 per share from $4.66 and $5.06 respectively, 30 days ago.

The Bottom Line

In addition to disappointing consumer spending and mall traffic, the retail space is going through a shift toward online shopping. With tightening labor markets, “wage pressure” has also started hurting retailers. It remains to be seen whether retailers like Kohl’s will be able to reorganize their operations and improve their profitability going forward.
 
Further, the industry is currently ranked 210 out of 265 Zacks industries (bottom 21%), suggesting potential underperformance in the short-to-medium term. Investors could however look at a better ranked retailer JC Penney (JCP), which currently has a Zacks Rank #2 (Buy). The company reported a huge beat and surged after the results.