Growing inflationary pressures on Kohl’s and its core consumer could spell trouble for the retailer in the near future, Cowen said. Analyst Oliver Chen downgraded shares of Kohl’s to market perform from outperform, noting that ongoing pressures on the middle income consumer could prevent the company from attaining its 7% to 8% EBIT margin target. “We downgrade the shares as a weakening and inflationary consumer backdrop could drive EPS downside and cloud long-term visibility to EBIT expansion,” Chen wrote. “Specific concerns are elevated inventory levels, lowered guidance, traffic and promotions, and kid’s and women’s product execution.” Along with the downgrade, Chen slashed the firm’s price target on the stock to $35 from $60 a share, implying a more than 12% upside in the near term. The retail stock has plummeted 37% this year. To be sure, Cowen remains confident in the company’s long-term trajectory and likes Kohl’s partnership with Sephora, Chen wrote. However, investors may find better value in stocks like Ulta Beauty and LVMH at this point, he said. “We do not downgrade our rating to Underperform as valuation is modest, but the stock could be range bound as investors wait and see for traction within the women’s and kid’s categories, expense leverage, inventory rationalization, and merch margin resilience,” he wrote. That said, a strong back-to-school shipping season could prove this thesis wrong, Chen said. — CNBC’s Michael Bloom contributed reporting
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