Why Kohl's Stock Is Skyrocketing Today

Key Points

• Kohl’s posted stronger-than-expected earnings and tighter cost controls for the quarter, but comparable sales continue to decline.

• A meme-fueled rally has lifted shares nearly 150% since April.

• Structural retail headwinds make a full turnaround unlikely, keeping the stock risky for long-term investors.

• 10 stocks we like better than Kohl's ›

Shares of Kohl's (NYSE: KSS) are jumping on Wednesday, up 23% as of 3:43 p.m. ET. The jump comes as the S&P 500 and the Nasdaq Composite both had modest gains.

The Wisconsin-based retailer reported its second-quarter earnings, revealing that while sales continue to shrink, it was able to beat Wall Street's expectations for the quarter.

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Kohl's earnings beat Wall Street's modest expectations

In its most recent quarter, Kohl's delivered earnings of $0.56 per share on sales of $3.35 billion, when Wall Street had expected $0.29 cents per share on $3.32 billion in sales.

Cost cuts and lower inventory helped drive down costs and improve margins, and while sales continue to shrink with a 4.2% decline in comparable-store sales year over year (YOY), that decline is slowing. Management has emphasized a leaner operating model, improved merchandising, and stronger partnerships to regain consumer traffic. The company's turnaround efforts are showing signs of working.

Image source: Getty Images

Kohl's is one of the latest meme stocks

That turnaround potential has helped mint Kohl's as a meme stock with retail investors convinced Wall Street has taken too pessimistic a view. This meme rally has seen the stock rise nearly 150% since a low in April.

I think this meme rally is bound to run out of steam, however. Increased competition, ongoing sales issues, shifting consumer behavior, and pressure from tariffs is going to make a full turnaround extremely difficult. I would stay away from Kohl's and brick-and-mortar retail in general.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.