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Kohl's Stock Slumps On 'Double Downgrade' From Bank of America Linked to Supply Chain Pressures

Bank of America cut is rating on Kohl's by two notches, to 'underperform', sending shares sharply lower in pre-market trading.

Kohl's Corp.  (KSS) - Get Kohl's Corporation (KSS) Report shares slumped lower Thursday after analysts at Bank of America loped two notches from their rating of the retailer amid concerns over supply chain disruptions heading into the holiday sales period. 

Bank of America analysts Lorraine Hutchinson cut her rating on Kohl's by two notches, to "underperform", with a $48 price target, citing the impact of supply chain disruptions that could hit the retailer's planned recovery. 

The call comes just as home retailing giant Bed, Bath & Beyond BBBY slashed its full-year profit forecasts and a second quarter earnings miss it said was owing to "unprecedented supply chain challenges" and slowing customer traffic. 

"Kohl's top performing active brands Nike  (NKE) - Get NIKE, Inc. (NKE) Report, Under Armour  (UAA) - Get Under Armour, Inc. Class A Report, Adidas, and Champion  (HBI) - Get Hanesbrands Inc. (HBI) Report are facing supply chain issues," Hutchinson said.. "According to Nike, the North America business will be most negatively impacted by supply chain delays in its 3Q, which corresponds to Kohl’s 1Q." 

"This issue is not unique to Nike and we expect delayed deliveries across the entire athletic ecosystem," she added. "We believe these slowdowns are likely to hinder the ability for Kohl's to drive the same type of outsized growth in Active as it has in recent quarters, putting same store sales at risk."

Kohl's shares were marked 12.1% lower in early trading Thursday to change hands at $47.20 each, a move that would extend their six-month decline to around 20%.

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Last month, Kohl's blasted Street forecasts for its second quarter earnings and boosted its full-year profit guidance as shoppers flocked to traditional retailers in the waning months of the coronavirus pandemic. 

Kohl's said at the time it sees net sales growing by a 'low twenties' percentage rate, with adjusted earnings in the region of $5.80 to $6.10 per share, up more than $2 from its prior forecast. 

August retail sales were surprising solid, rising 0.7% to a collective $618.7 billion, the Commerce Department noted earlier this month, but COVID-linked disruptions have brought havoc to global supply chains this year, while adding significant costs to freight and shipping.

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Recent data suggests the base price of shipping a standard 40-foot-equivlaent container from Shanghai to New York has risen five-fold from pre-pandemic levels to $15,000, causing supply shortages from everything from clothing to shoes to furniture and household appliances.

The average waiting time for shipping vessels outside the port of Los Angeles is now around 8 days, with a backlog of 54 ships outside of Long Beach. 

Consumer price increases may have also impacted spending, as August inflation was pegged 5.3% higher than last year -- just shy of the the fastest rate of increase since 2008 -- according to data from the Bureau of Labor Statistics published last week.