Macy's, Kohl's Slump After Analyst Cuts Targets Citing 'Tough Quarter'

Shares of department store retailers Macy's and Kohl's are sliding this morning after a Citi analyst cut his price targets on the stocks following channel checks.
By The Fly Staff ,

Shares of department store retailers Macy's (M) - Get Report and Kohl's (KSS) - Get Report are sliding this morning after a Citi analyst cut his price targets on the stocks following channel checks.

WHAT'S NEW: Citi analyst Paul Lejuez lowered his price target for Macy's to $48 from $52 and for Kohl's to $46 from $50 and kept a Neutral rating on both names. Lejuez said that based on channel checks and commentary from vendors like Ralph Lauren (RL) - Get Report and Michael Kors (KORS) , he believes the department store channel had a "tough quarter" and is facing a "challenging" future. The analyst told investors in a research note that already weak traffic trends coupled with warm weather likely led to a shortfall in sales. Lejuez expects inventory to seem elevated in the department store sector, particularly for the mid-tier players like Macy's and Kohl's.

MACY'S: Lejuez lowered his estimate for Macy's third quarter EPS to 47c from 52c, against consensus estimates of 54c, based on expectations for same-store sales to be down 1%-3%. Additionally, the analyst cut his fourth quarter estimate, and lowered the estimate for fiscal year 2015 to $4.45 from $4.51 and fiscal year 2016 to $3.91 from $4.10. Macy's reports Q3 results on November 11. Lejuez said he does not expect the company to report any large-scale real estate/real estate investment trust transaction, though he believes the company will borrow against its Herald Square store and use the proceeds to repay higher cost debt.

KOHL'S: The Citi analyst cut his estimate for Kohl's Q3 to 58c from 69c, based on expectations for same-store sales to be flat to down 2%. Lejuez also expects margin pressure in Q4 from elevated inventory, and lowered his estimate for Q4, with FY15 EPS now at $3.94 vs. his previous view of $4.09. The analyst says that he believes it would be "prudent" for Kohl's to lower FY15 guidance to about $4.00-$4.10 from the low end of $4.40-$4.60, though he notes that management is often "optimistic" regarding the holiday season. Lejuez believes the market could be "spooked" ahead of holiday due to a combination of weak SSS and elevated inventory. Kohl's reports Q3 earnings on November 12.

OTHER DEPARTMENT STORE RETAILERS: Lejuez is not lowering its estimates for Nordstrom (JWN) - Get Report or J.C. Penney (JCP) - Get Report , which report quarterly earnings on November 12 and November 13, respectively. The analyst believes trends are better at Nordstrom than at the other department store retailers, and believes traffic trends are "relatively strong." For J.C. Penney, the analyst believes traffic is weak and comps and margins were likely hurt by weather, but he believes "easy" productivity comps will allow the retailer to meet the comp forecast of up 4%-6%.

PRICE ACTION: Macy's is slumping 4.2% to $46.84 and Kohl's is down 3.9% to $44.75 in early trading. Nordstrom is also down 3% to $63.75 and J.C. Penney is down 2% to $8.56.

Reporting by Laurie Pasternack Chan.

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