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Kohl's Chugs Along Despite Challenges

Mar. 02, 2021 2:12 AM ETKohl's Corporation (KSS)2 Comments
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  • KSS reports earnings Tuesday. Revenue is expected to fall in the double-digit percentage rates due to knock-on effects of COVID-19.
  • Digital revenue rose 25% last quarter. Another strong performance this quarter could prove KSS is turning the corner on digital sales.
  • $2.3 billion in working capital should provide a buffer in case the pandemic lasts longer than expected.
  • KSS continues to chug along. I rate the stock a hold.
  • This idea was discussed in more depth with members of my private investing community, Shocking The Street. Get started today »

Source: BarronSource: Barron's

Kohl's (NYSE:KSS) reports quarterly earnings March 2nd. Analysts expect revenue of $5.86 billion and EPS of $1.01. The revenue estimate implies a double-digit percentage decline Y/Y. Investors should focus on the following key items.

Will Digital Have Another Strong Performance?

COVID-19 brought business to a halt in the first quarter of 2020. It caused Kohl's and several other traditional retailers to temporarily close stores in order to stem the spread of the pandemic. Kohl's furloughed 85,000 store and distribution center associates and some corporate office associates. In October 2020 the majority of furloughed employees had returned to work.

The pandemic also tested the digital platforms of retailers as millions of Americans were forced to shop online. In my opinion, the pandemic amplified headwinds traditional retailers had already been facing. Retailers must compete in a digital world or get left behind. Target (TGT), Walmart (WMT) and Lululemon (LULU) already embraced digital while Kohl's, in my opinion, was trying to play catch-up.

For the quarter ended October 2020 the company reported revenue of about $4.0 billion, down 13.3% Y/Y. The falloff was due to the continued knock-on effects of COVID-19. Comparable sales fell 13.3% for the quarter. Until the economy fully-reopens, comparable sales may continue to deteriorate. Pfizer (PFE) and Moderna (MRNA) have both received Emergency Use Authorization for a COVID-19 vaccine, creating a pathway to reopening the economy. In the second half of 2021 the economy could fully reopen. Kohl's may face headwinds until then.

However, the company's digital platform reported a strong performance, growing revenue 25% Y/Y:

Now let me shift to our third focus area in driving growth, delivering a differentiated omni-channel experience. The COVID-19 pandemic has no doubt accelerated the shift towards digital, and we’ve seen this in our business. Digital sales represented 32% of our total sales this quarter, increasing 25%.

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The Shock Exchange has a B.A. in economics and MBA from a top 10 business school. He has over 10 years of M&A / corporate finance experience. Currently head the New York Shock Exchange, financial literacy program based in Brooklyn, NY.His book, "Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead", predicted pain ahead for the U.S. economy and financial markets.In 2014 the law firm of Kirby, McInerney, LLP brought a class action lawsuit against Molycorp, Inc. for "materially misleading statements" in its financial statements. Kirby, McInerney used investigative journalism from the Shock Exchange to buttress its case. That's the discipline the Shock Exchange brings to every situation he covers for SA.

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Comments (2)

Sage Capital profile picture
KSS's new partnership with Sephora (LVMUY) that features 125 prestige beauty brands in Kohl's stores is a brilliant counter to Ulta. Since the Nov. 2020 launch of Ulta Beauty in Target, now we see a neck-to-neck horserace between two mass retailers trying to capture the incremental beauty sale.
The two US big-box department store retailers x beauty chains now work in pairs to maximize their mutual internal synergies while fending off the competition.

Considering challenges to big-box retailers have come from almost every quarter since 2020, requiring significant investments regarding technologies, in-store innovation, private brands, fulfillment, logistics experiences and services, it has been challenging for big-box retailers to focus on everything instead of what they are really good at.

Hence to leverage the top practices from beauty retailing with independent investments, innovations and existing awareness, it makes sense for TGT and KSS to leverage the two beauty leaders Sephora and ULTA to complement their existing beauty categories. Beauty is now the No. 2 product category after fashion.

This latest move by KSS keeps them in the game, providing support for the big run up in stock price in the past year. But as with most big box retailers without a distinctive competitive edge, the jury is still out for the long-term.
yeah we're 5x off the bottom on this one. Now a bump from the hedgies. It's a survivor in the Amazon Age. I concur it's a solid hold at this point.
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