Kohl's (KSS) Gets Kiss of Death

By the close of trading on Tuesday, shares of department store giant Kohl’s had shed almost 20% of their value in a single session. They were the worst performer in the S&P 500 on the day as their earnings brought back nightmares to investors of a similarly awful miss last May.

This time there was another bad EPS miss and while revenue hit estimates, it was still flat year on year. Management lowered the full-year profit outlook as sales were stagnant and margins tightened up across the board.

While the same management appeared upbeat about the holiday season, investors and Wall Street not buying it. The selling started early and shares gapped down over 16% at the open.

CNBC’s Jim Cramer went so far as to call out management for trying to paint over the dismal report instead of putting their hands up to investors and outlining their plan to turn things around.

Like many retailers, Kohl’s has been struggling to stay competitive as Amazon has gobbled up market share. A recent initiative to allow their stores to operate as return centers for Amazon stock has the feel of a ‘if you can’t beat ‘em, join ‘em’ air about it and results so far of initiatives like these are doing little to inspire investors. For a company that’s one of the world’s largest retail chains, they’re certainly on the back foot and are looking lost.

Shares are now down over 40% from the all-time highs they set this time last year. It will be a tough report for investors to digest as shares had put in a hard-earned 30% rally from August’s lows by the time Tuesday’s earnings derailed them.

Retail Under Pressure

If former retail giants Sears and Barney's filing for Chapter 11 hadn’t put icy fear in the hearts of retail investors over the past year, Tuesday’s trading session surely did. It was a stinking day for retail across the board. Home Depot NYSE: HD was down 5% following its earnings report. Even though EPS beat estimates, their sales were short and management cut 2019’s full-year forecast, just like Kohl’s. This helped to paint a grim picture of retail and consumer sentiment.

Nordstrom NYSE: JWN was dragged down by its industry neighbors. They smashed estimates in their August earnings release and had rallied 50% since then coming into this week. With shares down 6% yesterday amidst competitor reports, investors are sure to be nervous ahead of Nordstrom’s upcoming release this Thursday.

Kohl’s other top competitor in the department store space, Macy’s NYSE: M, was also feeling the heat and shares were down 11%, accentuated no doubt by reports of a data breach. Like Nordstrom, they release quarterly earnings on Thursday.

Throughout 2019, the indicators have suggested that consumers are starting to tighten their belts and we’re starting to see continued signs of it filtering through to Wall Street. 

Watch Out Below

In terms of KSS stock technicals, the $80 level has been a thorn in the side of investors for decades at this point. The stock came within $1.17 of breaking it in 2002, within $0.45 in 2007, $0.40 in 2015 and having briefly broken through it was rudely turned back from there in 2018.

Unfortunately, it looks as though it will be a while before $80 is on investor’s minds as they are firmly in damage control mode. To the downside, there’s support at the $45 level. This is where buyers stepped in to check the selling seen in the face of May’s earnings having also appeared there in times of weakness throughout the noughties and early years of this decade. Were the stock to disregard that level in the coming week, the mid $30s would be the next target for the bears.

Based on today’s action, all it could take to start heading down there is another bad earnings report or for an industry competitor to post similarly dismal numbers.