Kohl's (KSS) is expected to report first quarter earnings tomorrow before the open. There is a conference call scheduled for 9:00 ET. 

Capital IQ consensus calls for EPS of $0.67 (+5% yr/yr) on revenue of $3.97 bln (0.4% yr/yr). 

The Street is expecting Q1 comps of approximately +0.4% vs +3.6% last year. The Street is expecting Q1 gross margins of 25% vs 23% last year. 

  • The company will also update its guidance for FY20 which currently stands at $5.80-6.15 vs Capital IQ consensus of $6.04 (+8% yr/yr). As of the Q4 conference call, the company saw FY20 comps of 0-2%. The company also expected FY20 gross margins to increase up to 10 basis points over FY19 (Street expectations roughly unchanged yr/yr at 36.4%).

  • One of the key items of interest will be tariffs on clothing and toys. Macy's (M) reported last week and management said that the third tranche of tariffs going to 25% from 10% impacts some furniture but is manageable. However, the fourth tranche of tariffs that the US is considering on the remaining ~$300 bln of Chinese imports would impact apparel and accessories. Management implied that those higher costs would get passed down to the consumer.

  • Looking back, the company has not missed EPS since Q3 of 2017. However, during that same period the company missed revenues two times. KSS shares increased 7% following a Q4 beat on EPS and revenues. Q4 comps increased 1% vs 6.3% last year. Some interesting comments from the conference call included managements' highlight of success in the children's business. Specifically, the introduction of LEGO and FAO Schwarz, along with enhanced in-store and digital toy experiences, drove a significant increase in its toys business. Kohl's management stated it knew there was an opportunity to gain share this season due to the closure of a competitor -- think Toys ‘R' Us here.

  • On April 23rd, shares rose over 10% after the company announced an expansion of the Amazon returns program, which currently operates in 100 stores in select markets, to all Kohl's stores, effective in July.

TECHS:

KSS has a $10 bln valuation and trades at 10 EPS vs peer Macy's (M) at 7 times.

Based on the KSS Weekly May24 $64 straddle, the options market is currently pricing in a move of ~7% in either direction by weekly expiration (Friday).

On a positive report, look for resistance near the $67.00-68.00 area, while support sits near the $59.50-60.00.

TRADE: KSS MAY24 61P