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Department-store stocks plunged last week following a big rally earlier this year, as investors punished anything other than stellar third-quarter earnings results. Kohl's (NYSE: KSS) stock fell by 11.6%, even though the moderate-price department store hadn't reported its results.
Kohl's earnings report came out on Tuesday morning, and the stock joined its department-store peers in the doldrums with a 9% decline as of 1 p.m. EST. Yet while the earnings report wasn't everything that bulls had hoped for, it did show that Kohl's continues to make steady progress in improving its position in the retail industry.
Kohl's stock performance, data by YCharts.
Another solid quarter
Kohl's posted a 2.5% comp-sales increase in the third quarter on a "shifted" basis, which adjusts for a change in the timing of the fiscal quarter relative to the calendar year. That represented a slight slowdown relative to its 3.1% shifted comp-sales increase a quarter earlier but exceeded the 1.8% increase Kohl's achieved for the first half of fiscal 2018 as a whole.
Comparable-store sales rose 1% on an unshifted basis, driving a 1.3% increase in net sales, to $4.37 billion -- just ahead of the average analyst estimate of $4.36 billion.
Earnings per share (EPS) surged 40% year over year, to $0.98, compared to an average analyst estimate of $0.96. However, an unusually low tax bill contributed to the big EPS gain. At a normalized 24% tax rate -- in line with what Kohl's reported in the first half of fiscal 2018 -- EPS would have been roughly $0.90.
Of course, even a 24% tax rate would be a lot lower than what Kohl's was paying last year. Indeed, tax reform drove the vast majority of the company's EPS growth in the third quarter. Pretax income increased by a more modest 6.6%, reaching $195 million.
A lower tax rate drove most of Kohl's EPS growth last quarter. Image source: Getty Images.
Investors wanted more
While Kohl's sales results last quarter were in line with analysts' estimates, many investors were hoping for an acceleration in growth in light of the favorable consumer-spending backdrop. Kohl's did raise its full-year comp-sales guidance range slightly (to 1%-2% from a previous 0.5%-2%), but that apparently wasn't enough to meet expectations.
Investors may have been even more disappointed by Kohl's EPS forecast. The retailer raised its guidance range for full-year adjusted EPS from $5.15-$5.55 to $5.35-$5.55. However, analysts already had been expecting EPS of $5.51, near the high end of both ranges.