Our Retail team is crystal clear on Kohl’s. They’re advising investors to sell the U.S. department store retail chain now.
Why?
For starters, Hedgeye Retail analyst Brian McGough thinks there’s a “clear road map to extinction” for the company. It starts with falling earnings and ends with Kohl’s ceasing to exist.
“We said about a year-and a half ago, when the Street was talking about $5 per share in earnings, that it was like Bigfoot. You can talk about it, but you’re never going to see it,” McGough says.
In the brief excerpt above (from our Retail team’s institutional conference call on October 19th) McGough lays out the short thesis.
Here’s the essence of what he covers:
- Better Than Bad Quarter? (on Nov. 10th) – Probably. Inventories corrected. Growth and margin expectations are muted. But… if KSS does not beat this quarter, it probably never will without a serious correction in expectations.
- Dividend Cut – There simply isn’t as much cash flow as people think. As the economic cycle turns, the dividend goes away. CEO Kevin Mansell could finally get fired.
- Road to Extinction – As leverage increases, stores close. Then nobody takes it out (public or private). Equity stops trading. KSS ceases to exist.
