Editor's note: Seeking Alpha is proud to welcome Caleb Harbert as a new contributing analyst. You can become one too! Share your best investment idea by submitting your article for review to our editors. Get published, earn money, and unlock exclusive SA Premium access.I am a midwestern business owner that loves investing. Went to Purdue University for Mechanical Engineering and dropped out because my business was successful. I love real estate the most, where most my net worth is located, and then dabble/p ...

Core Viewpoint - The retail sector presents challenges for investors due to rapidly changing consumer preferences and retailer adaptability, with Costco and Kohl's demonstrating contrasting performance trends [1][2]. Costco - Costco is well-known for its bulk-selling warehouse model, charging an annual membership fee that grants access to a wide range of goods and services at competitive prices [4]. - The company has maintained high membership renewal rates, consistently around 90%, with a recent rate of 92.7% in the U.S. and Canada despite a membership fee increase [5]. - Membership numbers have grown to 79.6 million, up from 76.2 million, and the company operates 905 warehouses, having opened 20 to 30 new locations annually [6]. - Costco's operating income increased by 15.2% to $2.5 billion in the third quarter, reflecting strong profitability [6]. - Over the past five years, Costco's share price has risen by 203.8%, significantly outperforming the S&P 500's 98.7% increase [7]. - The stock has a high price-to-earnings (P/E) ratio of 56, indicating strong market expectations for continued profitability growth [8]. Kohl's - Kohl's offers a range of moderately priced merchandise but has struggled with declining sales and profits, with fiscal 2024 same-store sales dropping by 6.5% and earnings per diluted share falling by approximately 47% to $1.50 [9][10]. - The company has implemented various initiatives to drive traffic and sales, including integrating Sephora beauty shops and facilitating Amazon returns, but these efforts have not significantly improved sales [9]. - Management projects a further decline in same-store sales of 4% to 6% and diluted earnings per share to fall between $0.10 and $0.60 for the current fiscal year [11]. - The company has experienced leadership instability, with the recent CEO being terminated after a few months, complicating long-term turnaround efforts [11]. - Kohl's board reduced the quarterly dividend from $0.50 to $0.125, a move that typically signals a lack of confidence in future performance [12]. - Over the last five years, Kohl's share price has decreased by more than 55%, and it currently has a low P/E multiple of 9 [12]. Selection - Costco is identified as a better-managed company with consistent execution and growth opportunities, despite its higher valuation compared to Kohl's [13]. - Kohl's is viewed as a less attractive investment due to the current unlikelihood of a turnaround [13].

Market Outlook - Goldman Sachs raised its year-end forecast for the S&P 500 (SPX) to 6,900, up from 6,500, highlighting three stocks for investors to consider [1] - Other major investment banks, including Bank of America, are also increasing their S&P 500 forecasts, reflecting optimism around economic resilience and stabilizing inflation [2][3] - The current SPX stands at 6,263, with a year-to-date increase of 6.49% and a 14.8% rise over the past three months [3] Earnings Projections - Goldman projects S&P 500 earnings-per-share (EPS) to grow by 7% for both this year and next, driven by strong consumer demand and margin expansion [4] - The Federal Reserve is expected to support this growth through earlier and deeper interest rate cuts [4] Stock Recommendations - Goldman highlighted three stocks to watch: Kohl's, Intellia Therapeutics, and Gogo Inc., each linked to structural trends that could drive outperformance [6] Kohl's - Kohl's is viewed as a deep value play with a turnaround catalyst, currently trading down 33.40% for the year but up 20.5% over the past 90 days [7][8] - The company is focusing on inventory discipline, cost-cutting, and enhancing its loyalty program to stabilize revenue [9] - Kohl's is expected to benefit from lower bond yields when the Federal Reserve cuts rates, making it attractive for income-minded investors [10] Intellia Therapeutics - Intellia has seen a 45.3% increase in share price over the past month, focusing on CRISPR-based therapies for rare genetic disorders [11][12] - The company is recognized for its strong intellectual property portfolio and is positioned to benefit from the growing importance of gene therapies [13] Gogo Inc. - Gogo, a leader in business aviation connectivity, has seen its stock price rise 117% over the past three months, driven by strong recurring revenues and a 5G rollout [15][16] - The company has received FAA certification for 42 aircraft types, which covers 70% of its current North American customer base [16] - Gogo's growth is supported by a favorable capital markets backdrop and a strong recurring revenue model [19]

Core Insights - Kohl's stock has experienced a significant decline, with a loss of 80% over the past three years, closing at $8.12 compared to $40.54 previously [3][5] - The S&P 500 index, in contrast, gained 60% during the same period, highlighting the underperformance of Kohl's [3] - An initial investment of $5,000 in Kohl's would now be worth approximately $1,000, while the same investment in the S&P 500 would have grown to nearly $8,400 [4] Financial Performance - Kohl's has paid dividends of $0.50 per share per quarter until recently, when it was reduced to $0.125 per share, resulting in total dividends of nearly $700 over three years [4] - The total return from the initial $5,000 investment in Kohl's, after accounting for dividends, is approximately $1,700 [4] - The company projects earnings of $0.10 to $0.60 per share in 2025, which may not be sufficient to cover the new annual dividend of $0.50 [6] Market Challenges - Kohl's is facing ongoing challenges in the competitive retail industry, with same-store sales declining by 3.9% in the first fiscal quarter [5] - Management anticipates a further decline in same-store sales of 4% to 6% for the year, indicating a challenging outlook [5] - The reduction in dividends is often a warning sign of underlying issues within the company, which is evident in Kohl's current situation [5][7]

Financial Performance - Net sales decreased by 4.1% to $3.0 billion, with comparable sales down 3.9% in the first quarter of 2025[55] - Gross margin increased by 37 basis points to 39.9% of net sales, driven by merchandise mix and inventory management[65] - SG&A expenses decreased by 5.2% to $1.2 billion, representing 36.0% of total revenue, a decrease of 32 basis points year-over-year[55] - Operating income was $60 million, an increase from $43 million in the prior year, with an operating margin of 1.9%[55] - The company expects net sales to decrease between 5% and 7% for the full year 2025[59] - Digital sales decreased by 7.7%, with digital penetration at 24% of net sales compared to 25% in the first quarter of 2024[61] Cash Flow and Capital Expenditures - Operating activities used $92 million of cash in Q1 2025, a decrease of $85 million compared to $7 million used in Q1 2024[80] - Investing activities used $108 million in Q1 2025, down from $126 million in Q1 2024, primarily due to fewer Sephora shop openings[82] - Anticipated capital expenditures for 2025 are approximately $400 to $425 million, including investments in Sephora shops and e-fulfillment center expansion[83] - Capital expenditures are projected to be between $400 million and $425 million in 2025, including investments in Sephora shops and e-fulfillment centers[75] - Financing activities generated $219 million of cash in Q1 2025, an increase of $41 million compared to $178 million in Q1 2024[86] - Cash dividend payments were $14 million ($0.125 per share) in Q1 2025, down from $55 million ($0.50 per share) in Q1 2024[87] Inventory and Working Capital - Inventory increased by 2% year-over-year to $3.1 billion[55] - Working capital decreased to $300 million as of May 3, 2025, compared to $643 million previously[89] - Current ratio declined to 1.09 from 1.21 year-over-year, driven by increased borrowings and decreased cash[90] Tax and Credit Ratings - The effective tax rate for the first quarter was 10.4%, down from 32.5% in the prior year[70] - As of May 3, 2025, corporate credit ratings were downgraded to Ba3 (Moody's), BB- (S&P), and BB (Fitch) with a negative outlook[85] - Net borrowings on the $1.5 billion credit facility were $255 million in Q1 2025, compared to $263 million in Q1 2024[87] - The company was in compliance with all covenants of its senior secured revolving credit facility as of May 3, 2025[92]

Group 1 - The retail sector is highlighted as an attractive investment option for long-term investors, particularly those that offer consistent dividends [1] - Many 'Bricks and Mortar' businesses are reportedly on the verge of significant changes, indicating potential investment opportunities [1] Group 2 - The author, Rick, has over 20 years of experience in trading stocks and options, contributing to the credibility of the insights provided [1] - Rick's work has been featured in various authoritative publications, enhancing the visibility and trustworthiness of his investment perspectives [1]

Group 1 - The article highlights Paul Franke's extensive experience in stock picking and investment strategies, emphasizing his contrarian approach and algorithmic analysis for identifying stocks through a system called "Victory Formation" [1] - Franke's investment philosophy includes using stop-loss levels of 10% or 20% on individual stocks and maintaining a diversified portfolio of at least 50 well-positioned stocks to achieve consistent market outperformance [1] - The "Bottom Fishing Club" articles focus on identifying deep-value stocks or those showing significant positive technical momentum reversals, while the "Volume Breakout Report" discusses stocks with strong price and volume trends [1]

Core Insights - Kohl's Corporation reported a first-quarter fiscal 2025 loss per share of 13 cents, which was better than the Zacks Consensus Estimate of a loss of 22 cents and improved from a loss of 24 cents in the prior year [1] - Total revenues for the quarter were $3,233 million, down from $3,382 million in the same quarter last year, but exceeded the Zacks Consensus Estimate of $3,176 million [1] - Comparable sales declined by 3.9% year over year, which was better than the expected decrease of 6% [1] Financial Performance - Gross margin increased by 37 basis points to 39.9%, surpassing the expected increase of 10 basis points [2] - SG&A expenses decreased by 5.2% to $1,164 million, and as a percentage of total revenues, they fell by 32 basis points to 36% [2] - Operating income rose to $60 million from $43 million in the previous year, with an operating income margin expansion of 58 basis points to 1.9% [2] Financial Health - At the end of the quarter, Kohl's had cash and cash equivalents of $153 million and shareholders' equity of $3,779 million [3] - The company reported net cash used in operating activities of $92 million for the three months ending May 3, 2025 [3] - Kohl's expects capital expenditures to be between $400 million and $425 million for fiscal 2025 [3] Future Outlook - For fiscal 2025, Kohl's anticipates a net sales decline of 5-7% and comparable sales to decrease by 4-6% [4] - The expected operating margin for the year is projected to range from 2.2% to 2.6% [4] - Full-year earnings per share are forecasted to be between 10 cents and 60 cents [4]

Group 1 - The conference call is for Kohl's Corporation's First Quarter 2025 earnings, indicating a focus on financial performance and future initiatives [1] - Trevor Novotny, Senior Manager of Investor Relations, is leading the call, suggesting a structured approach to investor communication [1] - The call includes a question-and-answer session, highlighting engagement with analysts and investors [1] Group 2 - Forward-looking statements regarding projected financial results and future initiatives are made, which are subject to risks and uncertainties [2] - The company emphasizes that actual results may differ materially from projections due to various risks outlined in their annual report [2] - Non-GAAP financial measures may be referenced during the call, indicating a focus on alternative financial metrics for analysis [3]

Core Viewpoint - The recent court ruling regarding tariffs has positively impacted consumer goods companies, particularly Kohl's, which reported better-than-expected Q1 earnings despite ongoing sales declines [1][6][10]. Group 1: Tariff Impact - A U.S. Court of International Trade ordered the lifting of certain tariffs imposed by President Trump, which has led to a positive reaction in the stock prices of consumer goods companies [1][2]. - Companies like Deckers Outdoor and Five Below saw stock increases of 1.9% and 2.6% respectively, while Kohl's stock rose by 4.3% [3][4]. Group 2: Kohl's Q1 Earnings - Kohl's reported a smaller-than-expected loss of $0.13 per share against an analyst forecast of a $0.22 loss, with sales reaching $3.1 billion [6][8]. - The company experienced a 4.1% decline in sales and a 3.9% decline in same-store sales, but managed to improve its gross margin by 37 basis points to 39.9% [7][8]. Group 3: Future Guidance - Kohl's forecasts a sales decline of 5% to 7% through the end of 2025, indicating worsening sales trends compared to the 4.1% decline reported in Q1 [9]. - The company expects to be profitable for the year, projecting earnings between $0.10 and $0.60 per share, which falls short of Wall Street's expectation of $0.67 [10]. Group 4: Stock Valuation - Kohl's stock is currently priced at approximately $8, translating to a valuation of 12.5 times analyst forecasts, which are likely to decrease in line with the new guidance [11]. - If Kohl's achieves the midpoint of its earnings guidance at $0.35 per share, the stock would be valued at around 24 times current-year earnings, which is considered too high given the declining sales and earnings [12].