Don't give in to temptation to support this name on the guide-down.
No major surprises in the KSS print. Guidance was well below the Street, but about in line with our model. We like KSS realistic approach to 2013 – a year that will be marred by price competition from JCP, TGT, AMZN, SHLD, M and WMT.
Here are two major factors to consider...
1. The base business simply is not growing, and this was in a decent year overall for he industry.
- E-commerce reached $1bn in revs growing at 39% for the year, which contributed 1.5% to total top-line growth accounting for 70% of sales growth.
- KSS’ total revenue growth in F11 was 2.2%.
- If we assume e-commerce grows at a similar rate this year it would account for 2% total top-line growth; Guidance calls for 4.5% growth overall.
- Backing into new store productivity contributions for Q4, new store growth accounted for 2% total growth this past year.
- That would imply that e-com and new store growth = +3.5% vs. total at +2.2% = core contraction
2. The sales/inventory spread (see our SIGMA) eroded the most in over four years. That said, we did not see a capitulation in Gross Margins - the combination of which is very GM-bearish.
Resist temptation to buy on a sell off here.
