No-Moat Kohl’s Profitability Nosedives but New Leadership Provides Some Hope; Shares Undervalued

Indicative of the challenges facing new CEO Tom Kingsbury (see our Feb. 2 note), Kohl’s reported an unexpected loss in 2022’s fourth quarter and offered weak guidance for 2023. Like many peers, it had to resort to high discounting to move inventory in an apparel retail market characterized by excessive amounts of product amid slowing consumer demand. Additionally, Kohl’s continues to struggle to find the optimal merchandising and pricing strategies to hold or gain share. While we think Kingsbury has reasonable plans to fix these and other problems, they will take time to implement.