Since the fourth quarter was reported, I believe that some of the longer-term margin-widening story has come out Kohl's (KSS - commentary - Cramer's Take), which has rallied from $45 to $49 with the rest of the retailing group. I question whether the upside surprise of a 3.5% April comp is very sustainable, but it is no particular surprise that some of its newer brands in children's and men's continue to have some impact.
Leading retail indicators point to somewhat slower sales in the second half of this year after the tax rebate wears off. In this sort of environment, I will agree that Wal-Mart (WMT - commentary - Cramer's Take) has the final say on whether the money is even going to do much good for retailers in the short term, and the company has obviously spoken negatively on that. I would take Wal-Mart's comments as a negative leading indicator for second-half sales for the entire industry as well.
Kohl's at $49, using consensus EPS for this year and next of $3.11 and $3.55, respectively, discounts a 10% five-year EPS compound annual growth rate (CAGR), which is about what I believed the CAGR would be in my fourth-quarter note. At this point, I think that a 14% earnings growth, to $3.55, is a fairly unlikely increase, and $3.55 probably represents at least a good normalized EPS level. If I tweak my standard model of five-year EPS growth with a five-year decay rate to terminal growth (which I do not believe for Kohl's) to a three-year decay rate to terminal growth (after a five-year growth rate, which I still think gets Kohl's past the point of store saturation), the stock discounts a 12% EPS CAGR.
Home Depot (HD - commentary - Cramer's Take) may be telling us something about longer-term consumer spending overall, not just in the home-related space, with its decision to effectively cut out square-footage growth. Kohl's management will obviously be asked about this, and it will be the most important answer given. If management makes a big square-footage growth cut (which I do not expect, since the company does have some growth left), by itself or in concert with JCPenney (JCP - commentary - Cramer's Take), Target (TGT - commentary - Cramer's Take), etc., the question then becomes whether the long-term sales growth increases have become much worse than management or investors previously thought they were.
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