What Happened?
Shares of department store chain Kohl’s (NYSE: KSS) jumped 20% in the morning session after the company reported better-than-expected second-quarter earnings and significantly raised its annual profit forecast, signaling that its turnaround efforts may be gaining traction.
Kohl's posted adjusted earnings of $0.56 per share for the quarter, an 88.6% beat over analyst expectations. This strong bottom-line performance came despite revenue falling 5% year on year to $3.55 billion and same-store sales declining 4.2%. The results suggest that the company's cost-cutting measures are successfully improving profitability, as its operating margin expanded to 7.9% from 4.4% in the same quarter last year. Looking ahead, the company boosted its full-year adjusted earnings guidance to a range of $0.50 to $0.80 per share, a substantial increase from its prior forecast of $0.10 to $0.60.
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What Is The Market Telling Us
Kohl’s shares are extremely volatile and have had 44 moves greater than 5% over the last year. But moves this big are rare even for Kohl's and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 13 days ago when the stock dropped 3.1% on the news that a hotter-than-expected wholesale inflation report fueled concerns about slowing consumer spending.
The market was rattled by a Labor Department report showing the Producer Price Index (PPI), a measure of wholesale inflation, jumped 0.9% in July, significantly exceeding economists' expectations of a 0.2% rise. This was the largest monthly increase since March 2022, reigniting worries that businesses will be forced to pass higher costs on to consumers, who are already showing signs of price sensitivity. This inflation data has fanned concerns that U.S. tariffs on imported goods could start to translate into higher prices for shoppers. The inflation report landed amid growing evidence of consumer caution, with recent reports highlighting that shoppers are cutting back on non-essential spending, seeking out sales, and trading down to cheaper brands.
Kohl's is up 9.3% since the beginning of the year, but at $15.34 per share, it is still trading 27.3% below its 52-week high of $21.10 from September 2024. Investors who bought $1,000 worth of Kohl’s shares 5 years ago would now be looking at an investment worth $726.09.
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