Kohl’s Earnings: Sales Remain Poor but 2024 Profitability Outlook Raised; Shares Very Undervalued

There were some signs of progress in no-moat Kohl's second quarter despite a 5.1% comparable sales decline that missed our forecast for a 2.2% drop. Positives included a 60-basis-point increase in its gross margin on net sales and Sephora's low-teen-percentage comparable sales growth. The firm also lifted its full-year EPS guidance, but this increase was primarily related to the hold that has been placed on a proposed credit card late fee rule and might, therefore, be transitory. Overall, we do not expect to make any material change to our $48 fair value estimate, leaving Kohl's shares as attractive.