Kohl’s Stock Soars on Earnings. How It Pulled Off the Huge Beat.

Kohl’s expects net sales to decrease between 5% and 6% this year. (Alisha Jucevic/Bloomberg)

Kohl’s barreled past second-quarter earnings expectations and raised guidance for the full year, sending the stock surging in Wednesday trading. It was a huge surprise, given a report from Bloomberg just before Tuesday’s close that the retailer was late paying some vendors, one that it pulled off with a combination of cost cutting and lower inventory.

Kohl’s reported adjusted earnings of 56 cents a share, topping consensus estimates for 30 cents a share, according to FactSet.

Revenue for the quarter ended Aug. 2 fell 5% year over year to $3.55 billion, but sales still topped analyst expectations for $3.3 billion in sales.

Kohl’s also tweaked its guidance for the fiscal year. The company now expects net sales to decrease between 5% and 6% from last year, compared with prior guidance calling for a 5% to 7% decline. Adjusted earnings per share will range from 50 cents to 80 cents, higher than the prior range of 10 cents to 60 cents a share.

“We managed the business with great discipline in the quarter,” said interim CEO Michael Bender in a press release. “We were able to expand our gross margins, reduce our inventory, and lower our expenses, leading to solid second quarter earnings.”

The stock jumped 18% to $15.36 on Wednesday. Shares are down 7% this year, shedding 6.5% alone on Tuesday in response to a report that the company may be struggling to make vendor payments.

The company reportedly asked some vendors for more time to settle invoices, Bloomberg reported. A company spokeswoman told Barron’s over email that Kohl’s notified some of its vendor partners in March that the company would be updating and standardizing its payment terms in line with the retail industry at large.

In March, the company cut its quarterly dividend to 12.5 cents a share from 50 cents to focus on conserving cash and paying down debt.

Kohl’s has had a rough couple of years following the pandemic. Like many midtier merchants, the rise of e-commerce has shifted dollars away from stores, straining the business model. As a result, Kohl’s annual earnings and sales declined in the fiscal year ended Feb. 1. Including the quarter reported Wednesday, same-store sales have fallen for 14 consecutive quarters, declining 4.2% in the three months ended August.

High management turnover has exacerbated Kohl’s issues. The company has had five chief executives in the past 10 years. Current CEO Bender stepped into the role this May after then-CEO Ashley Buchanan was terminated for cause.

Kohl’s shares rallied briefly earlier this summer after attracting the attention of meme-stock traders, who often target heavily shorted stocks in an attempt to trigger a so-called short squeeze and drive up the price. Roughly 33% of Kohl’s 12.2 million shares are sold short. Indeed, part of Wednesday’s rally may be tied to these dynamics: Kohl’s was a trending stock on social-media platforms favored by retail investors. Meanwhile, the stronger-than-expected earnings and subsequent bump in the stock, may be forcing short sellers to buy back shares to limit their losses.

Write to Sabrina Escobar at sabrina.escobar@barrons.com