Off-price retailers thrive on volatility in consumer demand and misjudgment by designers, manufacturers, and full-price retail outlets for stocking their stores with new low-price products. Off-price and discount retailers benefit the most from shoppers hurt by recessionary economic conditions. Let's take a look if the nation's top discount department retailer -- Kohl's (NYSE:KSS) -- has benefited from economically-challenged shoppers and how it stacks up against the other two off-price retailers -- TJX Companies (NYSE:TJX) and Ross Stores (NASDAQ:ROST).
Not out of the woods yet
Kohl's had a depressing time in 2013. However, 2014 hasn't been any different for the company so far, as it missed consensus estimates in the recently reported first quarter. In the first quarter, its sales declined 3.1% versus the year-ago period to $4.1 billion.
Comparable-store sales, or comps, declined 3.4% over the same period last year. A volatile retail environment, lower consumer confidence, and weak store traffic due to unfavorable weather conditions led to a decline in comps, which contributed to the decline in sales. As a result, earnings per share declined 9% year-over-year to $0.62 per share.
Trying to improve
Looking forward, Kohl's is focusing on initiatives to reverse its decline. In April, it launched the first collection, which is a fusion of the magic of Disney and the quality and value of its Jumping Beans brand. This was well-received, and the company will be rolling out new elements from the Disney portfolio throughout the rest of the year.
Moreover, this month, Kohl's will be launching Fit Bed as part of extending its active and wellness business. It will also launch the IZOD brand in the men's and the Juicy Couture brand in the women's category. In addition, a partnership with Elie Tahari will be introduced as the next phase of a DesigNation strategy.
On the bright side, penetration of national brands has increased for three successive quarters in a row at Kohl's. Going forward, it will continue increasing investments in the inventory of national brands, while reducing the private and exclusive brand inventory. During the quarter, the company managed its inventory levels efficiently, as inventory dollars were down 1%, while units were down 4% year-over-year. This indicates that inventory is moving at good pace and there will be less markdowns going forward.
For driving new customers to stores and retaining them, Kohl's is investing in a few initiatives. For example, it is augmenting its online platform with significant investments around mobile. It is also investing in information technology infrastructure for a better in-store customer experience. It plans to expand its ship-from-store facility from 200 stores currently to 800 by the end of the third quarter.
Kohl's is also testing its loyalty program in California, Texas, and Pittsburgh. Once mature, the program will be rolled out nationwide. This is in addition to the current Kohl's Cash program. It has also extended its credit card partnership agreement with Capital One for another five years. This is a significant move, as the credit card business reported higher revenue during the quarter.
Are the peers better off?
While Kohl's struggled, Ross posted solid results in the first quarter of fiscal 2014. The off-price retailer reported a 6% year-over-year increase in sales on the back of a 1% year-over-year growth in comps. Earnings per share came in at $1.15, representing growth of 7% versus the year-ago quarter. Strict inventory and expense controls offset the negative impact of inclement weather and a more challenging retail environment.
Looking forward, Ross plans to open 29 new stores in the second quarter. It expects sales growth of 5% to 6% on the back of new openings, and comps growth of 1% to 2%. Earnings per share are expected to be in the range of $1.05 to $1.09, up from $0.98 last year.
Like Ross, TJX also started off the new fiscal year on a strong note, with the top line growing 5% year-over-year to $6.5 billion. Growth was fueled by a 1% jump in global comps. Earnings per share came in at $0.64, marginally missing the consensus estimate due to higher-than-expected unfavorable foreign currency impact.
Going forward, TJX sees vast growth potential. It currently operates 3,200 stores as against its projected opportunity of 5,150 stores in its existing markets. In addition, it will enter new markets in Europe, with plans to open the first few stores in Austria in the first half of 2015. For fiscal 2015, the company expects earnings per share to be in the range of $3.05 to $3.17, up from $2.94 last year, and consolidated comps growth of 1% to 2% versus the prior year.
Kohl's hasn't done as well as it peers, but the company is trying hard to overcome the issues that are holding its business back. New store openings and a smart product strategy should enable it to attract more customers going forward, while the loyalty program should lead to more customer visits. So, it can be said that Kohl's is down, but not out.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.