Some Don't Buy Kohl's Growth Story

Is Kohl's (KSS Quote - Cramer on KSS - Stock Picks) beginning a Gap(GPS Quote - Cramer on GPS - Stock Picks)-like decline?

That's the thesis of Deutsche Bank analyst Bill Dreher, who thinks the discount department store chain's recent troubles are more than a small dip. Instead, in a research note issued on Monday, Dreher argued that Kohl's may be going through a period of subpar results similar to what Gap finally pulled itself out of last fall.

"We believe that [the first quarter] was the first major crack in Kohl's big high-growth story," Dreher wrote in his note. "While management expects Kohl's to get back on track next quarter, we are hard-pressed to find an example of a high-growth retailer that has managed to keep such a stumble to just one quarter. While some have made it back, others have not, and in most cases it took them all much longer than originally expected."

Dreher slapped the stock with a sell rating and put a $44-per-share price target on it. (Deutsche Bank does not have investment banking business with Kohl's.)

Kohl's shares fell $1.11 cents, or 2.1%, to $52.28 in Monday's regular session.

Last month, Kohl's reported what was for it a poor quarter. The company met expectations, but only after lowering guidance first. Meanwhile, it posted a 2.4% decline in same-store sales, which compare like results at outlets open more than one year. While sales slowed, inventory surged, growing nearly 28% in the quarter.

Company officials warned that Kohl's might have to cut prices to move inventory in the second quarter, but gave earnings guidance that was in the range of analyst expectations. However, last week the company reported that it continued to see slow sales in May, as its comparable-store sales grew by just 0.1% over last year, compared to 8.7% growth in May 2002.

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