Thursday dawned bright for investors after a three-judge panel of the U.S. Court of International Trade ordered President Donald Trump to lift his April 2 "reciprocal tariffs," as well has his 25% tariffs on Canada and Mexico, and a 10% tariff on China (the last three imposed in response to the fentanyl crisis).
The president was given 10 days to amend his executive orders, which brought the tariffs into existence, in line with the court's order. The Trump administration has already appealed the court's ruling to the U.S. Court of Appeals for the Federal Circuit, however, and for the time being at least it's really not certain which way the tariffs winds will end up blowing.
Regardless, investors in consumer goods companies believed to be especially affected by the pricing of imports are reacting positively to the legal news. Deckers Outdoor(NYSE: DECK) stock, for example, which imports most of its shoes from Southeast Asia, is up a modest 1.9% as of 10:15 a.m. ET. Discount retailer Five Below(NASDAQ: FIVE), which imports "a significant majority" of its merchandise from abroad, is enjoying a 2.6% bump.
Department store chain Kohl's(NYSE: KSS) is doing best of all, its stock up 4.3%.
Image source: Getty Images.
One of these things is not like the others: Kohl's Q1 earnings
There's a reason for that. In addition to being a potential beneficiary of any lowering of tariffs on imports to the U.S., Kohl's had some actual good news to report this morning, after its Q1 earnings report showed a smaller-than-expected loss. Analysts had forecast Kohl's would lose $0.22 per share on sales of $3.1 billion this past quarter. The company basically nailed the sales target, at the same time as its loss per share was only $0.13, significantly less than feared.
That being said, it's still hard to call Kohl's news this morning "good."
Although Kohl's reported a small 37-basis-point improvement in gross margin on sales (to 39.9%), the sales it reported in Q1 declined 4.1%, and same-store sales declined 3.9%. New interim CEO Michael Bender confirmed, however, that these results were "ahead of our expectations" and may represent "early signs" of improved operations at his stores.
Kohl's managed to cut costs faster than sales fell, with selling, general, and administrative expenses falling 5.2% year over year, resulting in a small improvement to its operating profit margin. On the bottom line, net income was the aforementioned $0.13-per-share loss, or close to half the $0.24 that Kohl's lost in Q1 2024.
Kohl's guidance for 2025
Again, Bender mused that all the above may represent "early signs" of a turnaround at the retailer -- but Kohl's guidance tells a different tale.
Kohl's forecast a sales decline of anywhere from 5% to 7% through the end of 2025, which you'll notice is more than the 4%-ish decline the company reported for Q1. In other words, sales trends are getting worse, not better. Same-store sales are likewise expected to trend down, 4% to 6%.
On the plus side, Kohl's expects to end up profitable for the year, earning between $0.10 and $0.60 per share this year. On the minus side, Wall Street wanted Kohl's to promise a profit of $0.67 per share. Thus, the entirety of Kohl's full-year guidance range misses Wall Street forecasts -- and implies that despite beating earnings in Q1, Kohl's will still end up with a big earnings miss this year.
Is Kohl's stock a buy?
Whatever specific number Kohl's ends up earning, it will almost certainly be less than the $0.98 per share Kohl's earned last year. Priced at $8 and change after today's share price spike, Kohl's stock costs a modest 12.5 times analyst forecasts, but those forecasts will almost certainly fall to match Kohl's new guidance. If Kohl's ends up earning somewhere near the midpoint of its guidance, which would be $0.35 per share, it will mean Kohl's stock actually costs closer to 24 times current-year earnings.
For a stock with shrinking sales and falling earnings, that's too much to pay -- and that makes Kohl's stock a sell.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Deckers Outdoor. The Motley Fool recommends Five Below. The Motley Fool has a disclosure policy.
