Is Kohl's ( KSS) beginning a Gap ( GPS)-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.

Dreher cited Kohl's slowing sales and its excess inventory as reasons to be skeptical of its near-term results. The excess inventory not only will likely lead to markdowns, it could also lead to higher prices paid to suppliers, Dreher said. Kohl's is already asking for money back from vendors to help cover its current inventory overload; vendors are likely to build that price into what they charge Kohl's in the future, he said.

Meanwhile, Dreher noted that Kohl's new stores are not performing as well as they traditionally have. The company just opened a series of new stores in the Los Angeles area. The sales at those stores are about 70% those of mature stores. In contrast, new stores opened in recent years in the Boston and New York areas posted sales rates of 80% to 90% of those mature stores.

"Clearly, Kohl's format is not being as well received in LA as it was in these other noteworthy markets," Dreher wrote, adding that "we would caution investors that when the first-year results in California are finally tallied next spring, it may not turn out to be as encouraging as originally estimated."

Dreher compared Kohl's situation to Gap, Home Depot ( HD) and other retailers whose management teams expected quick turnarounds but instead had to endure months of stumbling. Gap, for instance, posted more than two consecutive years worth of same-store sales declines before finally posting a month of sales gains last fall.

Not everyone is convinced of Dreher's thesis, however. Despite the company's May sales report, many sell-side analysts reiterated their "buy" or "outperform" ratings on Kohl's last week. Many cited the company's valuation, noting that its current multiple is far below its historic average.

Kohl's is trading at about 24 times current-year earnings. In the recent past, it has traded at upwards of 35 times forward earnings.

Meanwhile, others are on the fence. On the one hand, Kohl's stock won't jump until the company shows an improvement in its same-store sales, said Fran Radano, a research analyst with Gartmore Global Investments. But the company's direct competitors -- department store chains such as J.C. Penney ( JCP) and Sears ( S) -- are weak, he said. And Kohl's projected square footage growth of 18% to 20% per year is unmatched in the sector, he said.

"It's a tough one," Radano said. "If I had to go long or short on it, I would probably go long, but I know it would probably be bumpy."