Don’t Be Fooled by Strong January Sales at Kohl’s Corporation (KSS)

By contrast, Macy’s also achieved double-digit comparable-store sales growth in January, but did so through better supply of “fresh fashion goods” that were added to the assortment after the Christmas rush. While Macy’s also saw weakness in the November-December period, it still managed to post comparable-store sales growth of 2.5% in that period. Macy’s somewhat better sales performance in November and December, and its lower reliance on clearance merchandise in January, allowed it to reaffirm its original fourth-quarter EPS guidance of $1.94 to $1.99.

A worrisome trend
The poor performance at Kohl’s Corporation (NYSE:KSS) in November and December was not the company’s first misstep of the year. Kohl’s also made bad decisions in planning its spring and summer assortments, and ended up with insufficient inventory of items that proved to be popular. Low inventory led to a 2.7% decrease in comparable-store sales for the second quarter. Due to the disappointing second-quarter sales drop and the slow holiday season, Kohl’s will post fiscal-year 2012 EPS well below its initial guidance of $4.75. Last month, the company updated its EPS guidance to a range of $4.11 to $4.13.

Missing the original earnings guidance by more than 10% would be a poor result under any circumstances. However, it is particularly disappointing because Kohl’s missed a golden opportunity to take advantage of last year’s turmoil at J.C. Penney Company, Inc. (NYSE:JCP). J.C. Penney’s transition away from a promotional model alienated many of its former customers and resulted in a 23% sales decline in the first nine months of fiscal-year 2012. Other competitors such as Macy’s and Dillard’s, Inc. (NYSE:DDS) were able to take advantage of J.C. Penney’s struggles to grow their market share. Kohl’s, which caters to the same middle-class customers as J.C. Penney, should have been able to do the same. With J.C. Penney planning to bring back sales this year, the competitive environment will only get tougher for Kohl’s going forward.

Foolish bottom line
The brief pop in Kohl’s comparable-store sales last month pales in comparison to the company’s poor performance in the rest of 2012. With one of its major competitors (J.C. Penney) struggling, Kohl’s ought to have gained market share and posted strong sales growth for the year. Investors should be wary of investing in Kohl’s until the company can show that it has returned to consistent sales and profit growth.

The article Don’t Be Fooled by Strong January Sales at Kohl’s originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg is short shares of Dillard’s. The Motley Fool owns shares of Dillard’s.

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