Kohl's stock surges after retailer delivers unexpected earnings beat

The Yahoo Finance Live team discusses the rise of Kohl's stock after the retail chain delivers surprise profit.

Video transcript

JULIE HYMAN: Shares of Kohl's surging this morning after the company posted a surprise profit and reiterated its full year outlook. Kohl's is disappointing investors in recent quarters, but the company is looking to reinvent itself and woo some middle income consumers. Part of the way it's doing that, Diane, Sephora, right? That seems to be bringing some traffic in.

DIANE KING HALL: Yeah, we were having that chat about, like, where-- who's shopping at Kohl's? No offense, Kohl's. And you know, I always make the joke about Kohl's Cash because I know people who go there love their Kohl's Cash.

JULIE HYMAN: Oh really? OK.

DIANE KING HALL: Yes. So I think another thing that Kohl's did well is just putting certain brands in there that-- so if someone is in there like the Amazon drop offs, like if you're returning an Amazon, if you're already in Kohl's, you see something near the checkout, I suppose you pick it up. I know I've been there with my little son before and he's like, oh, can I have this? And I forgot about that as I'm, you know, thinking about it. So putting those things like the Sephora in there and look you're seeing shares jumping 18% on this news. So very different than a lot of the other retailers we've seen and in terms of the warnings that some retailers gave this earnings season, right?

JULIE HYMAN: Yeah. Just a couple of things to note here. When we look at same store sales, they were actually down more than estimated. They fell by 4.3%.

However, gross margin was better than estimated, 39%. And that was above the average analyst estimate of about 37%. Like many of the other retailers that we have seen, they started to work down inventories, which is a positive thing, down 6% in the first quarter. So that's also something that helped matters here.

So interesting here, Tom Kingsbury is the relatively new CEO. He took over in February. And so he does seem to be making progress.

One note I want to mention when we're looking at this, what seems like an outsized reaction in the shares here, well, first of all the shares have done very poorly going into this. Secondly, the shares are heavily, heavily shorted. 19% is what I'm looking at here in Bloomberg data, is the percentage of the shares-- of the float, excuse me, that is shorted.

So that's a relatively high number. And that implies that at least some of the upside today could be short covering. So that maybe--

DIANE KING HALL: This is true. And I mean--

JULIE HYMAN: --exaggerating the move.

DIANE KING HALL: Yes, it may be exaggerating the move, but they certainly perform better when you compare it on a year-over-year basis.