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Takeaway: Guidance was slightly weak. But not as weak as it should be. Numbers need to come down -- a lot.

1) Results Slightly Better…The 3.7% comp was already reported, which resulted in a $2.2bn pop in KSS EV (stock from $60 to $70). Nothing new on that front today. Gross margins looked slightly less bad – down 14bps.  But the comp allowed KSS to leverage SG&A growth of 2.4%, which is rare for this company. Combined with lower D&A, lower tax rate, and fewer shares (a positive), KSS leveraged the 3.7% comp into 7.4% EBIT growth, and 17.9% EPS growth – KSS’ fastest EPS growth rate in almost 5-years.

2) But Guidance Slightly Worse – Just 4 months ago KSS issued long-term guidance of 3% comps through 2017. 2015’s guidance of 1.5%-2.5% isn’t 3%. Coming off a solid 4Q, with such supposed company-specific momentum in its business on top of macro/weather tailwinds, we wonder why so conservative. It seems pretty soon to temper expectations.

3) While the market is telling us that we’re flat-out wrong in saying this, we think that this is the last year KSS earns over $4.00. It took a lot of financial engineering to get there: D&A $886 vs. initial guidance of $950 and most recent guide of $900, and a sub 36% tax rate got them enough to earn $4.24 for the year. Without these benefits KSS would have been seen negative EPS growth on a 7% share count reduction. We think that the incremental customer acquisition with its new rewards plan is extremely costly, not to mention the underlying drivers for the change in the plan are grossly misunderstood by the Street (including the risks to credit income -- 24% of EBIT).  To buy KSS here you need to believe in $6 earnings power. That’s simply not going to happen. Real EPS power is closer to $3-$3.50. That’s a stock of around $40 – 42% below where it is today. The risk/Reward looks solid to us on the short side here.