- Kohl's fell as much as 15% on Thursday after Bank of America downgraded the retailer to "Underperform."
- The bank lowered its price target on Kohl's to $48, representing potential downside of 11% from Wednesday's close.
- "We think reduced receipts from supply chain issues could hinder Kohl's sales recovery," BofA said.
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Shares of Kohl's tumbled as much as 15% on Thursday after Bank of America downgraded the retailer to "Underperform" from "Buy" on supply chain concerns that could hinder the company's sales recovery.
BofA lowered its price target on Kohl's to $48, representing potential downside of 11% from Wednesday's close. In Thursday trades, Kohl's stock was trading around $46.
The downgrade comes as supply chain bottlenecks ravage nearly all industries, with ports backed up with shipping container vessels and increased pricing pressures leading to a worry of persistent inflation.
"We think reduced receipts from supply chain issues could hinder Kohl's sale recovery and offset both progress that the team is making on women's and the benefit of Sephora," BofA explained. Specifically, the supply chain issues could lead to a high risk of delayed receipts and stock outs for Kohl's active and women's private label business.
The bank thinks Kohl's fiscal 2022 sales will be 10% below current analyst consensus of $18.6 billion. And even though Kohl's stock is inexpensive, currently trading at a forward price-to-earnings ratio of 8.9x, the stock can still trade down if analyst estimates continue to be lowered, according to BofA.
Kohl's management has acknowledged its supply chain issues and is working to shift production and expedite orders, but despite its efforts it can't avoid port congestion and a longer-than-expected closure of factories in Vietnam due to the spread of COVID-19.
Active wear has been a big driver for Kohl's sales recently, with the company completing a brand refresh and seeing outsized growth in the segment. But now this same segment is one of the most vulnerable to supply chain disruptions.
And it's not just Kohl's, Nike said in its most recent earnings call that it expects delayed deliveries for its entire athletic ecosystem.
"We believe these slowdowns are likely to hinder the ability for Kohl's to drive the same type of outsized growth in Active as it has in recent quarters, putting same store sales at risk," BofA concluded.
