Kohl's (KSS) did little to change the big box retailer narrative Tuesday morning. Results weren't as ugly as we've seen from the mall anchors thus far, but I'd be remiss to call them inspiring. Total revenue down 3% year over year. Comps down 2.9%. Gross margins dropped 72 basis points. Diluted earnings per share finished 12% lower compared to last year. These aren't the kind of numbers you jump out of bed to run and get. It creates a scenario where many investors are waiting for price/valuation to come down to meet lower fundamentals rather than running price higher into valuation.
It wasn't all bad for Kohl's. The company did post revenue and EPS ahead of expectations. Despite missing on comp sales, management indicated the last six weeks of the quarter were positive as back to school sales posted strong results. Amazon (AMZN) is also helping to drive sales, but not in a traditional manner. Items bought on Amazon can be returned at Kohl's stores. Kohl's packs up the item and ships it off to Amazon for the customer. The theory is once a consumer is in the store, they will become a shopper. It's a low-cost, unique approach to creating a captive consumer. While it should boost the top line, I do think it will have its limits in terms of growth.
The price action today started strong but has faded fast. This has created a precarious pattern on Kohl's weekly chart. The good news for bulls is they still have the remainder of the week to rectify it. The bad news is they will likely be relying on Nordstrom (JWN) to make it happen. My concern for Kohl's sits at the $45 level. The big drop in May and small rally in the summer created a bearish cup and handle pattern. Yes, they can be bearish as well as bullish. Simply put, the cup and handle pattern is a continuation pattern. Furthermore, the handle can come in the form of a sideways channel or like what we see on the Kohl's weekly chart. It is a period of a tight, patterned trading range that remains tempered against the cup. A break of $45 would target the $37.50 to $40 range.
Given the winter high of $80, a quarterly dividend of $0.67, and respectable earnings, I would say $40 is a more realistic target than $37.50. But until we see Kohl's over $52.50, it is difficult to be bullish. That doesn't mean there won't be a bullish trade possible, but if your time horizon is more of an investor (months or years instead of weeks or days), than that's the level you need to see the stock trading above before Halloween to get interested.