Kohl’s stock plunged Thursday after the retailer was downgraded twice by an analyst at
Bank of America
due to supply chain issues.
The stock fell nearly 14% after analyst Lorraine Hutchinson rated the department store chain as “underperforming” against a previous “buy” rating, lowering the target price from $ 75 to $ 48.
(ticker: KSS) remain up over 15% so far this year, with the stock recently trading around $ 47.
“We believe the reduction in revenue from supply chain issues could hamper Kohl’s sales recovery and offset both the team’s progress on women and the benefits of Sephora,” Hutchinson said in a note Thursday. Kohl’s has entered into a new partnership with Sephora, the French beauty retailer, to replace its own in-house beauty department in numerous stores.
Revenue, in retail accounting, refers to cash received by the business, including sales. “While lower revenue means less clearance, which is good for margins, we believe the headwind in sales will be difficult to offset,” Hutchinson added.
The analyst reduced the earnings per share estimate for the year 2021 by $ 0.30, from $ 6.09 to $ 5.79, and the EPS estimate for the year 2022 by $ 1.11, dropping from $ 6.47 to $ 5.36, noting that the biggest risk to the consensus forecast is likely in the first half of 2022.
“The stock is relatively cheap, but with declining estimates, we see a downside,” Hutchinson said.
Much of the rationale for Bank of America’s downgrade lies in the supply chain issues facing Kohl’s most popular sportswear brands, such as
(ADS.Germany) and Champion.
Nike, for example, lost 10 weeks of production due to plant closures in Vietnam and reported doubling in transit times to the United States, Hutchinson said.
Sportswear accounted for 24% of Kohl’s sales in the second quarter, growing 40% year-on-year.
Kohl’s is not alone in facing supply chain pressures. Pressures from the Covid-19 pandemic, such as local restrictions on industrial production and labor shortages in trucking and ports, remain a concern for many businesses.
Write to Jack Denton at [email protected]