Kohl's shares tumbled Tuesday morning despite releasing second-quarter earnings that beat analysts' profit and sales estimates. The retailer raised its profit outlook for the year, but it wasn't enough to please investors.
Kohl's shares had already climbed more than 111 percent from a year ago, bringing the retailer's market cap to $13.2 billion. Retail rival Macy's saw a similar sell-off in its shares last week on the heels of a strong earnings report. Its stock value had surged more than 90 percent over the previous 12 months, and analysts said investors were taking profit.
Department store chains like Kohl's and Macy's have been looking for ways to grow sales online, as Amazon increasingly takes market share in categories like apparel and appliances, while foot traffic dwindles at some shopping malls. Meanwhile, consumer confidence is stronger in the U.S., with record low unemployment, giving many retailers a boost ahead of the holiday season as shoppers are more willing to open their wallets.
Kohl's stands out from its peers because of its unique partnership with Amazon today. Kohl's now sells the Amazon Echo, among other tech devices, and has also started accepting returns for the digital retailer at a handful of its stores across the U.S.
The company is also investing in finding new uses for its real estate. It's started opening smaller stores and plans to divide some of its larger locations for tenants like grocer Aldi and fitness gyms.
Its strategy appears to be paying off and serving as a traffic driver, retail analysts say. Kohl's profit surged 40.4 percent for the quarter ended August 4 to $292 million, or $1.76 per share, compared with $208 million, or $1.24 a share, a year ago. Analysts expected earnings of $1.64 a share, according to a poll by Thomson Reuters.
Revenue climbed 4 percent to $4.57 billion, again ahead of the $4.26 billion forecast by analysts.
Sales at Kohl's stores opened for at least 12 months were up 3.1 percent, better than the 2.7 percent increase that analysts were expecting.
"What excites [us] most about the story is the company's potential pipeline of multi-year traffic drivers, including its Amazon Returns partnership and subleasing excess space to other high-frequency concepts," Gordon Haskett analyst Chuck Grom said.
Still, Kohl's shares fell as much as 4.6 percent in premarket trading on the news.
The department store chain said it's men's and women's apparel segments were the strongest during the quarter, followed by shoes. It also reported stronger gross margins thanks to a heightened focus of late on trimming excess inventory and selling more items at full price.
"We saw strength across the business — both our store and digital channels, all regions of the country, and our proprietary and national brands," CEO Michelle Gass said in a statement.
Looking to the full year, Kohl's now expects to earn between $4.96 and $5.36 per share, compared with a prior range of between $4.86 and $5.31 a share. Analysts surveyed by Thomson Reuters were calling for earnings per share of $5.39 in fiscal 2018.
