Editor's Note: Below is an excerpt from an institutional research note written by Hedgeye Retail analyst Brian McGough. To read this entire research note, email sales@hedgeye.com.
There was definitely entertainment value in listening to this Kohl's (KSS) call. When it gets to a point where one can joke with buddies in the business as to how ridiculous management sounds – you gotta wonder if sentiment has hit a bottom.
Unfortunately for KSS, it has not.
This is not an over-shorted stock relative to how much numbers still have to come down. $2.50 in EPS before $4.00. And I’d argue sub-$2.00 before $4.01+.
One of the best things I heard CEO Kevin Mansell say on this call is that [traffic is more important than comp.] Hmmm…
- You had the best macro/sales backdrop you’ve seen in years, which resulted in less bad traffic.
- But people still bought less.
- Simply put, that tells me that people want less of the stuff that KSS is selling.
That leads me to one of the many questions I’d ask if I had the opportunity to look Mansell in the eye – something he won’t let me do (I’m banned from analyst meetings). Here’s a doozy…
- McGough Q: How many brands does KSS have (it’s 537, fyi)? How many of your brands do you think the consumer would be genuinely disappointed to see go away?
- Note: I asked Paul Charron at LIZ this a decade ago. He said ‘maybe 2-3’ out of his rolled-up 46 brands. There are only 3 left – and are owned by 3-different parent companies.
I’m willing to bet that if 500 of KSS’ brands simply vanished overnight – the consumer would not even blink. I’ll go with something closer to 5. That’s a severe problem in #Retail5.0 when 150% of your EPS is from Credit, Sub-prime, and deferred lease payments.