Analysis: KSS M JWN

Shares of Kohl's (KSS) are falling in early trading this morning after reporting sales numbers from its holiday season. On a positive note, management raised the lower end of its fiscal 2018 diluted earnings per share outlook to the range of $5.50 to $5.55 (consensus $5.51), up from the prior range of $5.35 to $5.55. However, the disappointment came from shifted comparable sales, which increased 1.2% for the Holiday period and negatively compares to JP Morgan retail analyst Matthew Boss' expectation of +1.8%.

Although the sales numbers look tame compared to last years near 7% holiday number, we believe it is critical to have perspective. The company knocked it out of the park in the fourth quarter last year, and the strong holiday season led to fourth quarter same stores sales of +6.3%. For fourth quarter 2018, it will be an accomplishment just to "comp" those numbers, and current expectations are for just +0.1% year-over-year fourth quarter same stores sales growth. So to suggest that business has fallen off a cliff, like today's stock reaction suggests, is misguided.

But don't take it from us. In CNBC's report about Kohl's figures this morning, they quoted GlobalData Retail Managing Director Neil Saunders who said Kohl's sales gains were "much more difficult to attain this year" due to the strength of last year's season. "The main takeaway from Kohl's numbers is not that growth has come down a bit. ... Rather it is that Kohl's is executing and delivering in a consistent way with some good progress on both the top and bottom lines." And let's stay focused here, Kohl's management still raised its full year adjusted earnings per share guidance, unlike Macy's (M) which provided several downward revisions to its full year outlook. Unfortunately, the department stores (Kohl's, Nordstrom (JWN) , and Macy's) trade together, and the outsized negative reaction to M's news has put a drag on KSS.

Don't get us wrong. We are disappointed in the numbers and expected more, but we discussed earlier this week how the stock ran ahead of itself and we took advantage. On Monday, we downgraded our rating to a TWO and trimmed shares above $68 in our Alert here. Furthermore, when we saw the stock climb higher just two days later, we did not hesitate to lighten up even more of our position as we issued another sale in our Alert here. We didn't sell everything because we believe in CEO Michelle Gass and management's execution - and this was confirmed by management's ability to produce positive numbers off a difficult year over year comp as well as raise the lower end of its full year adjusted earnings per share outlook - but we still exhibited discipline to price.

Where do we stand on today's pullback? Again, we think this is an overreaction, but we will stay disciplined to our December 7th buy below $63 in our Alert here before we buyback what we just sold higher.