Kohl’s (NYSE:KSS) shares slipped more than 19% during Thursday’s trade on the impact of lower than expected sales growth in the last two months. KSS stock price declined almost 22% in the last month alone, reversing all gains it generated in the last twelve months. The company’s stock is down nearly 15% in the last year, extending a three-year selloff to 26.15%.
The selloff in Kohl’s stock price in the last three years was the result of fumbling financial performances and increasing market competition. In the last three years, the company’s sales growth remains flat, while earnings declined almost 12%.
The latest plunge in Kohl’s share price was driven by lower sales and earnings guidance for the final quarter of FY2016 and fiscal 2017. KSS now sees earnings per share in the range of $3.60-$3.65 from $3.80-$4.00 earlier, as its comparable sales declined nearly 2.1% in the month of November and December, compared with the same period last year.
Kohl’s total sales declined 2.7% in the last two months, while it expects lower than expected gross margins amid the competitive promotional environment. The company is operating in a competitive business environment, forcing it to invest heavily in promotional campaigns, which has a negative impact on its margins and earnings.
KSS says sales were volatile throughout the holiday season, with strong sales on Black Friday and during the week before Christmas offset by softness in early November and December.
However, after a biggest daily loss on Thursday, Kohl’s share price offers a strong buying opportunity for dividend investors. The company’s shares look significantly undervalued compared to the industry averages. Its stock is currently trading around 15 times to earnings, compared with the industry average of around 20 times. In addition, KSS stock also looks cheap considering a price to book ratio of 1.8, when the industry average is hovering around 2.4.
On the other hand, Kohl’s dividends also appear safe, thanks to its strong cash generating potential. The company currently offers a quarterly dividend of $0.50 per share, yielding around 4.70%.
Its payout ratio based on earnings is standing around 60%, suggesting that the company’s earnings are providing a complete cover to dividends. In addition, Kohl’s dividends also look safe on the back of its strong cash flows that are adequate to fund dividend payments. Therefore, the plunge in its share price is a buying opportunity for dividend investors.
The author has no positions in the above mentioned companies.