Why Kohl's Stock Sank Today

Key Points

• Kohl’s reported Q2 EPS of $0.56 on $3.35 billion in sales, topping Wall Street’s expectations.

• Cost cutting and leaner inventory improved margins, though comparable-store sales still fell 4.2% year over year.

• Shares spiked over 24% Wednesday on meme-stock momentum but are retreating as investors take profits.

• 10 stocks we like better than Kohl's ›

Shares of Kohl's Corp (NYSE: KSS) fell on Thursday, finishing the day down 5%. The drop comes as the S&P 500 and the Nasdaq Composite gained 0.3% and 0.5%, respectively.

The retailer saw its stock spike yesterday after reporting earnings that beat Wall Street's expectations. Shares are retreating today after the initial excitement fades.

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Kohl's did better than many expected

Kohl's reported second-quarter earnings per share (EPS) of $0.56 on revenue of $3.35 billion, exceeding consensus targets of $0.29 per share on revenue of $3.32 billion.

Margins improved for the Wisconsin-based retailer after implementing cost-cutting measures and reducing inventory. Although comparable-store sales continued to fall year over year, declining by 4.2%, the rate of that decline is slowing.

Image source: Getty Images.

Kohl's has captured the attention of a retail audience

Still, the fact it topped estimates helped send shares soaring yesterday as retail investors took the earnings as proof positive a true turnaround is possible. Kohl's has become one of the latest meme stocks whose success has been driven in large part by the retail audience. That means it's likely to see outsized spikes and drops that are larger than those experienced by most retail stocks. Today's retreat isn't being driven by specific news; rather, it's a natural response following yesterday's more than 24% jump as investors take profits.

I'm not sure I share the same sentiment fueling its meme-stock status. I think there are too many headwinds.

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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.