Kohl’s Earnings: Signs of Progress Despite Disappointing Sales; Shares Undervalued

Kohl's third-quarter 5.5% same-store sales decline was worse than our estimate for a 2.5% drop, but its profitability was better than expected. The firm guided to a full-year sales decline of 2.8%-4% and $2.30-$2.70 in EPS, little changed from prior guidance and in line with our forecast. Although shares fell by about 10% on the report, we do not expect to make any material revision to our $50 fair value estimate, leaving shares very undervalued. We rate Kohl's as a no-moat company due to the competitive challenges for traditional department stores, but also believe it has strengths, including its loyalty program of more than 30 million members and value positioning.