The coronavirus outbreak is spreading at an alarming rate. The pandemic has infected more than 680,000 people worldwide and the death toll has crossed 33,000. The retail sector is under major pressure, with companies shutting stores, limiting store hours and withdrawing their guidance. In fact, companies are also bound to keep stores shut for extended durations as the situation is worsening.
In connection with this, Kohl’s Corporation KSS stated that it will prolong its temporary store closure plan until any further notification. Also, the company is undertaking efforts to enhance financial flexibility. Incidentally, Kohl’s had shut down all its stores — roughly more than 1,100 — effective Mar 19. Nonetheless, the company then informed that shoppers can continue purchasing 24-hours a day via Kohl’s App or on Kohls.com. Further, management highlighted that the company will support store employees with two calendar weeks of pay.
Well, several other retailers have extended their store closure plans amid the coronavirus scare. Nordstrom JWN, Guess? GES, and Ulta Beauty ULTA, to name a few retailers, have prolonged store closure plans to contain the spread.
Coming back to Kohl’s, the company in its Mar 19 release informed that it is altering fiscal 2020 capital allocation strategy, which comprises curtailment in capital expenditures, temporary suspension of share buyback activities and evaluation of dividend program. However, the company stated that it will pay previously announced quarterly cash dividend of 70.4 cents a share on Apr 1 to shareholders of record at the close of business on Mar 18.
Kohl’s further revealed that it has fully drawn its $1-billion unsecured credit facility to improve financial flexibility amid coronavirus crisis. Simultaneously, the company also withdrew its recently provided guidance for the first quarter and fiscal 2020, given the current situation and its unpredictable impact on demand for the merchandise it offers.
In its last earnings call, management projected comps growth in the range of negative 1% to positive 1% for fiscal 2020. Further, it expected the gross margin to decline 10-20 basis points. SG&A expenses were anticipated to increase 1-2% from the 2019 figure. Kohl’s projected adjusted earnings per share (EPS) in the range of $4.20-$4.60 for fiscal 2020. For fiscal first quarter, the company had guided for gross margin contraction and projected EPS of 40 cents.
We believe that COVID-19 and its resultant store closures are likely to hinder Kohl’s performance in the first quarter. Shares of this Zacks Rank #5 (Strong Sell) company have plunged 68.5% so far this year compared with the industry’s decline of 63.8%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report
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