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Takeaway: KSS Credit Income = The only number we really care about from 10Q. Poses significant risk to earnings, transcending the credit cycle.

KSS - Credit Income

Kohl's released its 10-Q after the close on Friday, giving us a look at the only number we really care about -- KSS' Credit Income -- which is up only $2mm over last year and is leveling off on the margin. We outlined in a note on 11/10 (KSS | Here’s Why KSS Is Expensive) why this line item transcends the credit cycle, and poses significant risk for KSS earnings -- even if top line growth stays in tact. The crux is that KSS is more fully-penetrated in its core customer than perhaps any other major retailer at 75%. Credit Card companies will no longer underwrite KSS' growth into an incrementally more marginal consumer base, so KSS is going solo with it's own rewards program. Our research shows that this is leading to cannibalization in credit income growth, which should result in significant SG&A deleverage in the model. By 2018, we've got KSS clocking in at $3.00, less than half of the Street at $6.25.

Retail Callouts (12/7)  |  KSS Credit Income - 12 7 2015 chart1

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