Is Kohl's Setting up for Disappointment?

We sniffed out the unexpected KSS beat last quarter, driven by a strong holiday season. Now, things are shifting.

Here's what we're watching ahead of earnings:

1. Consumer Demand Comparative Weakness

LikeFolio data does not support continued sales growth at the 20Q4 pace. Consumer demand fell in the quarter being reported (highlighted on the chart above).  2. Increased Amazon-driven Foot Traffic

Kohl's said it added +2 million new customers last year because of its Amazon partnership, and that this increased foot traffic did result in sales. These mentions remain +36% higher vs. last year... but is it enough to materially move the needle? 3. Omnichannel Efficiency has Room for Improvement Yesterday we talked about one thing Target is doing really well: cultivating its omnichannel experience. We are not recording the same consumer response with Kohl's. Last quarter, KSS digital sales increased +22% YoY and comprised 42% of net sales. Stores fulfilled ~45% of digital sales. This is much lower than Target's 95% store fulfillment. Meaning, Kohl's has a long way to go. 4. Fulfillment Growing Pains Kohl's digital mentions looked slightly elevated in April. That should be good, right? Qualitative analysis revealed most of Kohl's digital mentions in the month were consumer complaints related to inefficient shipping/package count, extended shipping times, and an overall poor experience. It's great Kohl's is focusing on digital, but we'd like to see improvement in sentiment. 5. Looking ahead: Monitor Sephora rollout in Kohl's stores. The beauty partnership launches on kohls.com this summer, with plans to roll out in 200 stores by the end of the year. The demographic crossover element is one to monitor. We're not sure customers hoarding Kohl's Cash are going to splurge on Sephora's much pricier brands, but we'll be listening in real-time to understand if this happens. Andy talked about this in detail on the TD Ameritrade Network (video below).https://www.youtube.com/watch?v=J0YookZMLt8