Kohl's (KSS) is providing a degree of caution for investors not willing to key in on conference calls that follow even positive prints.
Shares of the Wisconsin-based retailer traded down more than 5% Tuesday morning, changing tack from the pre-market positivity on quarterly numbers that initially promoted a nearly 5% gain.
The early stock surge came quickly after the company posted a top and bottom line beat for the second quarter and reaffirmed full-year guidance.
"We are pleased to report that our business strengthened as we progressed through the second quarter," CEO Michelle Gass said in a statement. "We are confident that our upcoming brand launches, program expansions, and increased traffic from the Amazon (AMZN) returns program will incrementally contribute to our performance during the balance of the year and beyond.
The headline figures and positive commentary on partnerships initially overshadowed a slowdown in same-store sales, which fell nearly 3% in the quarter, and gross margin that was squeezed more tightly than analysts had anticipated. The strength of the consumer and willingness to spend at the business was clearly the most important initial report.
$KSS is sure reacting well ahead of its call. Are we sure this isn't bad? There was a little chatter about double digit traffic growth, thanks to the roll-out of Amazon returns.
I'd want to hear some more on the call, tbh. Not trading it but I've got a not-great feeling... pic.twitter.com/0nb15eWG3G— Jeff Macke (@JeffMacke) August 20, 2019
Unfortunately for shareholders, the conference call quickly eroded the early optimism as the spectre of tariffs spooked the market as demand dynamics and margin forecasts come into question under the pressure.
"Tariffs created by the trade war between the U.S. and China are obviously a challenge here, and as I write this missive, KSS CEO Michelle Gass just went there in the conference call," Real Money contributor Stephen "Sarge" Guilfoyle commented on Tuesday morning. "That is precisely why market watchers saw the share price move from positive to negative prior to the opening bell." (Read how Guilfoyle would play the stock here.)
The company has long been one of the most sensitive to tariff pressure, performing poorly since the intensification of tensions in late 2018.
"The strip-mall based department store chain and its private label goods business were squarely in the cross hairs of the new tariffs, putting future gross margins in a precarious situation," Jim Cramer's Action Alerts PLUS team noted, utilizing the recent tariff reprieve to trim its holding. "There are still several clothing and apparel items subject to the September tariff."
With the back-to-school season serving as a pivotal sales time, the coming pressures put the retailer firmly under the market's microscope on tariff impacts.
"While the Amazon partnership (and the several other initiatives management has in place/are upcoming) provide a glimmer of hope for the second half, we are still cautious around Kohl's tariff exposure and the general challenges facing department stores," the AAP team concluded ahead of the earnings release.
In light of the whipsaw action in shares on Tuesday morning, that caution appears to have been appropriate.
For what the charts are telling investors to inspect in the day's ahead, click here.
Kohl's and Amazon are holdings in Jim Cramer's Action Alerts PLUS member club.