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Takeaway: 2014 looks fine, but the Street is 20% too high in ‘15. Moreover, KSS might not earn $4 again until the tail end of the next economic cycle.

We’re adding KSS to our Best Idea list as a short. We have not liked this name for a while, but we think the recent strength in the stock is simply unwarranted. We’ve seen sell-side upgrades, Cramer pumping the name due to strength in Izod and Skechers (seriously?), and a general mindset that you can’t short operationally levered retailers like KSS when we’re facing 4-5 months of ‘easy’ compares for US Consumer spending – especially with KSS hosting an analyst meeting in October.  For the remainder of this year, KSS’ estimates ($4.30) are probably OK.

But while the Street is looking for 10% earnings growth next year, we’re modeling a -10% decline in earnings for the year. While this is a call on next year, we also think it is a call on the ones that follow. We think that 2014 will mark the last time for at least 4-5 years  -- barring a parabolic acceleration in the US economy -- that KSS will earn anything starting with a $4. That’s not good when the Street is over $5 two years out. Its operational misses should crimp its ability to buy back stock and financially engineer the P&L. We’ll be hosting a call next Wednesday with a full deck to review our thesis (including some preliminary results of the department store consumer survey that we just completed).