Even after this implosion, it is not too late to short KSS. The reality is that it is more expensive today than it was yesterday at a higher price. This is and has been our highest conviction short behind HBI.
#accountability check…only three months ago when earnings expectations were sitting at $4.06, we said that there was a better chance of KSS seeing $2.75 before it saw $4.25. It seemed aggressive, but now – not really. And yes, the Street still thinks that KSS can financially engineer $4.00 EPS in perpetuity. That simply won’t happen.
Seriously tho… there’s a good lesson for all of us here. When a company…
- Has one of the most non-proactive, comfy and sub-mediocre management teams in an entire sector,
- Has too 40% too many stores and 70% too much square footage,
- Has already acquired 76% of the customers that could buy a faux cashmere sweater for $19.99 (zero customer growth),
- Tapped into sub-Prime credit markets to acquire the last 30% of its customers,
- Is amortizing leases at 2.5x the industry norm under the assumption that the stores will still be relevant in 24 years – which is 10-15 years after KSS will likely go Ch11.
- Is EARNING ZERO after the $1.65 in credit income and normalized lease duration. Yes – it has well over $3 per share in ‘false’ EPS.
- Is the poster child for a company the benefitted from the non-durable consumption wave that we outlined today in our ReFlation = #Annihilation deck – the same one that Trump is trying to reverse. (LINK: Retail Black Book | Consumption Paradigm Shift)
- Can’t increase store traffic by even 0.1% on a good day,
- Has a margin-dilutive ‘me-too’ ecommerce business,
- Is driving earnings through higher credit income at the exact time when its credit partner (COF) is putting up deteriorating delinquencies and charge-offs – which seems impossible,
…and ultimately, has a clear roadmap to financial and operational extinction at the same time the long time CFO retires at the ripe young age of 54. When all this is so clear, it probably does not matter that ‘it’s cheap, has lots of cash, and an easy 4Q comp.’ Some companies have easy comps for a reason – because they consistently create them. It’ll create another one.
LINK: KSS Black Book – A Critical Quarter to Dividend Cut, and Extinction
11/6/16: KSS | Mo Matters, But It Has Opposite. $6.50 up/$30 down. Beat that…
10/6/16: KSS Black Book - Why This Quarter Is Critical For Kohl's
9/14/16: KSS | Here’s Where We Stand Today on a Name Unlikely to Exist in 10 Years
