Why Kohl's (KSS) Shares Are Crumbling

Tickers in this article: KSS

NEW YORK (TheStreet) -- Kohl's  failed to present a sunny picture to investors on Thursday, reporting lower-than-expected third-quarter results and pessimistic guidance for the holiday shopping season. In response, shares crumbled 8% in premarket trading to $53.59.

The Milwaukee-based business recorded a 1.6% drop in comparable-store sales and third-quarter net income of 81 cents a share, missing Thomson Reuters estimates by a nickel. Revenue fell 1% from last year to $4.44 billion, $110 million shy of consensus.

Wall Street's estimates were dampened after the department store chain predicted total sales declines between 2% and 4% for the profitable holiday season and comparable-store sales down by 2% at most.

The retailer slashed its full-year earnings forecast to between $4.08 a share to $4.23 a share from a previous guidance range of $4.15 to $4.35 a share. Analysts estimates full-year net income of $4.23 a share.

Kohl's CEO Kevin Mansell remains hopeful the company can deliver a strong fourth quarter.

"As we enter the holiday season, we believe we are well-positioned from a merchandise content and inventory perspective to gain market share," he said in a statement. "We have increased our marketing spending and improved its impact and reach in order to drive higher traffic to our stores and online."

Despite the disappointing financials, Stifel reiterated its "buy" rating and price target of $60. The investment firm remains optimistic several of management's plans in motion will reap long-term rewards.

"We remain hopeful longer-term when the loyalty program is rolled out across the country, the changes to 150 additional beauty departments are implemented and perhaps most importantly, the new marketing efforts and the new merchants begin to have a significant impact. At these levels, we believe the stock is undervalued," the research report said.

TheStreet Ratings team rates Kohl's Corp as a Buy with a ratings score of A-. The team has this to say about its recommendation:

"We rate Kohl's Corp (KSS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, expanding profit margins, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income."