Kohl's (KSS) delivered in terms of beating estimates. Overall, the retailer incurred some expenses in the quarter related to extinguished debt, store closures, and tax settlements. These types of costs did eat into unadjusted earnings for the fourth quarter. Without those charges, Kohl's successfully grew earnings in the fourth quarter. Overall, I'd like to see the company trying to get rid of debt. At the same time, I am not a fan of the announcement of further share buybacks in 2019. I believe the retailer should save its war chest for better endeavors.
Comparable sales (on a shifted basis) increased 1% for the fourth quarter, and 1.7% for the year. This handily beat expectations of 0.3%. Adjusted for charges, Kohl's reported earnings of $366 million. That's a 17% increase compared to 2017's $312 million. Diluted earnings for the fourth quarter were up 20% to $2.24. For the year, adjusted earnings increased 32% to $927 million. Full year diluted earnings were $5.60, a 34% increase. On a fiscal basis without the adjustments for charges such as debt reductions, fourth quarter comp sales decreased 1%, while full year sales increased 1.5%.
Over the long term, I really like the retailer's efforts to reduce debt. Kohl's paid off $413 million in the fourth quarter with over $900 million in outstanding debt extinguished for the year. With two year extensions on the remaining debt, the company expects interest expenses to shrink by $45 million a year. I hate debt a lot. It cripples a business' ability to maneuver. This is one of the smartest things Kohl's can spend its money on.
Something I don't like is seeing money being spent on is share buybacks. It's a parlor trick to drive earnings per share higher. I'm sure it makes shareholders happy, as they're gaining equity but it certainly isn't the best use of cash when retailers are struggling to maintain their presence in a market becoming dominated by Amazon (AMZN) . The company announced plans to repurchase $400 million to $500 million in stock in 2019. I personally think this is a mistake as the money could be used for innovation or simply saved for a rainy day. It becomes a question of pleasing markets versus running the business.
Be mindful of expenses. While we've have good adjusted numbers, we have to remember that on a GAAP basis, Kohl's had lower earnings. Net income fell 42% to $272 million thanks to all of the expenses. While I get it that they had impairments and costs from driving down debt, this can't become a trend. Otherwise adjusted earnings will become relied upon to make the truth seem "brighter". Cash flow was also a bit of a problem for the year, with a total decrease of $374 million in cash/equivalents for the year.
I still believe in Kohl's. They operate within a nice area in terms of pricing and inventory. They're not too cheap, not too expensive. They're making nice initiatives with Amazon that aid in driving their own traffic. Guidance is good for the stock. Earnings per diluted share of $5.80 to $6.15 would give the company a forward P/E of roughly 10x earnings if we go off the high end of guidance. It's a good value stock that has kept stable sales in a less than cordial market. Kohl's has a good stash of cash on hand, with $934 million in cash/equivalents. I have continued worries about the effects that share buybacks could have on this, but we'll have to see how that pans out. Overall, I think the sheer value of the stock makes this one a buy. The dividend is solid and guidance suggests the stock price is safe through 2019.