Deutsche Bank Downgrades Kohl's

Analyst Bill Dreher says sales may no longer support earnings for the department store chain

Deutsche Bank cut its rating on Kohl's (KSS ) to hold from buy.

Analyst Bill Dreher says third-quarter earnings per share were in line with guidance, but he thinks investors built in expectations for an upside to guidance. It now appears the added cushion from gross margin is no longer a source of earnings-per-share support.

Dreher also thinks the trajectory of recovery for selling, general, and administrative cost leverage and traffic has flattened. He says the main issue now is comparable sales: fourth-quarter sales are expected to be 1% to 3% higher, below the historic 4% to 6% range.

He figures Kohl's needs to do 5% comparable sales for the quarter in order to drive earnings per share above $1.00. This seems less likely than he had anticipated. He cut his $60 12-month price target to $56.