No-Moat Kohl's Unpredictable 2022 Continues With Opaque Holiday Outlook; Shares Very Undervalued

Befitting a year full of twists and turns, no-moat Kohl’s withdrew its 2022 outlook and provided no specific guidance for the fourth quarter. Neither outgoing CEO Michelle Gass nor interim CEO Tom Kingsbury (see our note of Nov. 8) participated on the earnings call, leaving the heavy lifting to CFO Jill Timm and Chairman Peter Boneparth. While Timm expressed optimism concerning the holiday season, she also warned that discounting is prevalent across apparel retail and that Kohl’s core middle-income consumer is under pressure from inflation. Moreover, like no-moat Macy’s, Kohl’s experienced slowing sales in late October and early November, possibly due to unseasonable weather and an unusually long holiday shopping season in 2021 as shoppers were concerned about stock-outs. However, we do not expect to make significant revisions to our fourth-quarter forecast as we had already anticipated a sales decline of about 5% against a difficult comparison (up 6% last year). Similarly, we do not expect to make a material change to our $54 fair value estimate and, thus, continue to view Kohl’s as undervalued. Although the year has been very chaotic, the retailer remains profitable and its long-term debt of about $1.9 billion is manageable.