Big swing for brick-and-mortar retailer

It’s no secret traditional brick-and-mortar retailers have had, to put it mildly, a rough go of it in recent years—if you want a snapshot of their collective trajectory, turn an Amazon (AMZN) chart upside down.  So a disappointing Q3 earnings release by Kohl’s (KSS) on Thursday probably didn’t catch Wall Street off-guard.

But here’s the thing: Maybe it did. The Street was apparently surprised enough to slam the stock in early trading. The company beat revenue estimates, but missed earnings by two cents ($0.70 vs. $0.72) after surprising to the upside for the past five quarters,and reported a 20% decline in profits from Q3 last year. Disappointing but not terrible, perhaps? With the number of vultures hovering over traditional retailers, though, pundits will tell you these companies can’t afford to miss a beat.

In recent years the stock hasn’t gotten pummeled as much as some of its competitors. Although it was down around a third from its late-2016 high earlier in the year, it managed to rally more than 25% from mid-August to late-September (although it’s still miles from its 2015 all-time high just below $80).

Kohl's (KSS) 8/8/17–11/09/17

Source: OptionsHouse

The stock sold off sharply on Tuesday, and options trading was ramped up on Wednesday: big trades in the $38.5 and $36 November 10 puts, which were still out-of-the-money when KSS closed at $40.79.

That all changed Thursday morning, when KSS opened more than 6% lower and soon traded below $38. Traders put up more big prints in the $37 November 10 puts.

But then a funny thing happened: KSS started ramping to the upside around 90 minutes into the session, and a little more than two hours later it had closed its gap and pushed into the black on the day.

Kohl’s (KSS), daily (8/8/17 – 11/9/17)

Source: OptionsHouse

Kohl’s price history shows an interesting pattern after other intraday moves of this magnitude. When the stock closes in the bottom half of the day’s range, the odds favor at least a couple days of rebounding price action, while a close in the upper half of the range (like Thursday) have tended to be followed by up to four days of weakness before a rebound.
Kohl’s (KSS), weekly (8/7/2006 – 11/9/17)

Source: OptionsHouse

But that reflects price action dating back to 1997, when Amazon was mostly a book seller and Kohl’s was still in the early part of a major uptrend. The question now is how far bulls may be willing to take the stock higher in the face of negative industry sentiment. A weekly chart shows Kohl’s Thursday low came within a few points of the support zone formed by the 2016 and 2017 lows. If that level doesn’t hold, the stock is looking at support in the vicinity of its 2009 bottom below $25. 


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1 Kohl's (KSS) Posts Dismal Q3 Earnings, Updates Guidance. 11/9/17.