Shares of Kohl's (KSS) are under pressure on Thursday after Bank of America analyst Lorraine Hutchinson double-downgraded the stock to Underperform, a sell-equivalent rating, and warned that supply chain issues could hinder the company's sales recovery and offset the progress that its management is making on its women's business and the benefit of its deal with Sephora.
SUPPLY CHAIN PRESSURES: Bank of America analyst Lorraine Hutchinson downgraded Kohl's to Underperform from Buy with a $48 price target. The analyst warned that the reduced receipts from supply chain issues could hinder Kohl's sales recovery and offset the progress that its management is making on its women's business and the benefit of having Sephora shop-in-a-shops. Hutchinson added that while lower receipts are good for margins, as this means less clearance activity, the sales headwind will be "difficult to offset."
Activewear penetration has more than doubled over the past five years, the analyst noted. However, Hutchinson says that Kohl's top performing active brands - Nike (NKE), Under Armour (UAA), Adidas (ADDYY) and Hanesbrands' (HBI) Champion - are facing supply chain issues. The slowdowns could hinder Kohl's ability to drive the outsized growth in active that has offset declines in other areas, she contended. Meanwhile, the women’s business experienced a disproportionate share of inventory receipt delays in the second quarter due to its high penetration of private brands and a faster than anticipated sales recovery. The company is actively working to secure inventory to address the situation, but conditions have gotten worse, not better since the second quarter call, the analyst argued, adding that this puts the high-end of 2021 guidance at risk.
EARNINGS MISS, PROFIT FORECAST CUT: Another major retailer is under pressure on Thursday morning trading. Shares of Bed Bath & Beyond (BBBY) have moved into negative territory after the company missed consensus estimates for its second quarter earnings and cut its full year profit outlook, citing "unprecedented supply chain challenges" and slowing customer traffic.
For the second quarter, Bed Bad & Beyond reported adjusted earnings per share of 4c and revenue of $1.985B, both below the expected 52c and $2.06B, respectively. The company also reported a comparable store sales decline of (1%) versus Q2 2020, primarily driven by slower than expected traffic trends in August across stores and digital. For the third quarter, Bed Bath & Beyond said it sees adjusted earnings per share between 0c-5c and revenue of $1.96B-$2B, with consensus at 28c and $2.02B, respectively. Additionally, the company cut its full year 2021 adjusted earnings per share view to 70c-$1.10 from $1.40-$1.55, with consensus at $1.51, and cut its full year 2021 revenue view to $8.1B-$8.3B from $8.2B-$8.4B, with consensus $8.31B.
Mark Tritton, Bed Bath & Beyond's President and CEO said, "Following solid growth in June, we saw unexpected, external disruptive forces towards the end of the quarter that impacted our outcome. In August, the final and largest month of our second fiscal period, traffic slowed significantly and, therefore, sales did not materialize as we had anticipated. As COVID-19 fears re-emerged amid the on-going Delta variant, we experienced a challenging environment. This was particularly evident in large, key states such as Florida, Texas and California, which represent a substantial portion of our sales. Furthermore, unprecedented supply chain challenges have been impacting the industry pervasively, and we saw steeper cost inflation escalating by month, especially later in the quarter, beyond the significant increases that we had already anticipated. This outpaced our plans to offset these headwinds. These factors impacted sales and gross margin."
PRICE ACTION: In Thursday morning trading, shares of Kohl's have dropped almost 14% to $46.32, while Bed Bath & Beyond's stock has slipped over 26% to $16.43.
Bed Bath & Beyond
-5.71 (-25.73%)
Kohl's
-7.26 (-13.53%)
Nike
+0.6 (+0.41%)
Under Armour
-0.755 (-3.64%)
Under Armour
-0.475 (-2.63%)
Adidas
+0.8 (+0.51%)
Hanesbrands
-0.92 (-4.97%)