Kohl’s Earnings: Fair Start to 2023 Provides Confidence in Value Creation Plans; Shares Undervalued

Kohl’s outperformed modest expectations in 2023’s first quarter, providing confidence in newly appointed CEO Tom Kingsbury’s stabilization plans. We view results as fair given that many apparel retailers struggled with excess inventories in an environment of declining consumer demand. Kohl’s reiterated its full-year outlook for sales down 2%-4%, a 4% operating margin, and $2.10-$2.70 in EPS. As our estimates align with this outlook, we do not expect to make any material change to our $50 per share fair value estimate. Shares edged up by a mid-single-digit percentage on the report, but we continue to view the firm as extremely undervalued. Our view is that Kohl’s, although a no-moat retailer, will generate consistent free cash flow with modest improvements in sales and margins.