Kohl’s Stock Forecast

Kohl’s Stock Forecast: Coronavirus caused one of the biggest stock market declines since Black Monday (that happened in 1987 for those who don’t remember). Retailers are in trouble. J Crew has already filed for bankruptcy.

The list of companies that may go bankrupt is growing:

• Macy’s
• Dillard’s
• JC Penney
• Nordstrom
• Levi Strauss
• Signet
• Tapestry

But not all retailers on the verge of shutting the doors. Some companies will be poised to capitalize on the things people need most right now, such as Netflix for entertainment and Zoom for working from home. Others, like Kohl’s (KSS) are laying the groundwork for future successes.

Kohl’s Is Diversified But Seasonal Trends Hurt

Kohl’s is a department store chain – and a little bit more. It has just under 1,200 locations plus another 12 FILA outlets and four discount stores called Off-Aisle. It distributes goods to these locations via nine distribution centers, although brand vendors or distributors do deliver a small amount directly. Digital sales may come from a distributor, vendor, or store location.

Kohl’s sells national brands as well as some proprietary brands – the split was roughly 60:40 (National:Proprietary) in 2018. The chain’s focus is on mid-priced apparel and home goods.

In 2018, Kohl’s most popular segment was women’s clothing, which accounted for 28% of its revenue. Men’s clothing came in second at 21%, followed by Home at 19%, Children’s at 13%, Footwear at 10%, and Accessories at 9%.

Like many retailers, Kohl’s is subject to seasonality. Most of its traffic comes in the latter half of the year, starting with back-to-school shopping and extending through the holidays. However, Kohl’s does more than sell clothing and home goods.

Kohls Vs Amazon

Kohl’s has an agreement with Amazon to accept returns. Amazon customers can bring items back to Kohl’s. The department store packs and ships the returned items to Amazon.

The move helps bring potential customers into Kohl’s locations – a move that the New York Times called Kohl’s “single biggest initiative.”

Kohl’s has also started carrying some of Amazon’s branded technology. Accepting Amazon returns does drive up the costs of operation at the store-level, but Kohl’s CEO Michelle Gass believes the “long-term bet” will be good for both companies.

And, that’s not all.

Kohls and Land’s End

In March 2020, Kohl’s announced that it would partner with another retailer Land’s End (LE). The latter had been intertwined with Sears, but Land’s End spun off from the company in 2014 and the relationship completely ended in January 2020. Land’s End has a strong reputation as a family clothing store that is catalog-based and high-value.

Going forward, some Kohl’s stores will feature a Land’s End shop within a store, much the way that Land’s End had operated in tandem with Sears. The focus of the new venture will be to augment Kohl’s seasonal offerings. The items will be available in select locations and on Kohls.com by Fall 2020.

Partnering with Kohl’s will help Land’s End expand its reach amongst customers in the same target demographic. At the same time, Kohl’s will benefit from the reputation and quality of Land’s End products.

Is Kohl’s a Buy?

The Amazon and Land’s End agreements are definitely feathers in Kohl’s proverbial cap and they could help re-establish the department store with people who have been focused on internet shopping. Kohl’s focus on increasing foot traffic could be a major payoff.

To Kohl’s credit, the department store chain is also well-diversified. Its product offerings do center on clothing, but sales of its women’s clothing is only marginally above that of men’s clothing.

The company is also not overly invested in one national brand or vendor over another. Its product mix is solid. Other advantages to Kohl’s include a loyalty program and a store credit card component.

Should You Buy Kohl’s Stock?

Kohl’s does have some risk factors in play. At the end of the day, Kohl’s is a retailer. If people are not buying because of an economic downturn or quarantine, the company is bound to take a hit.

Department stores have to buy the items they sell far in advance of actually putting those items out on offer. While the stores could reduce hours or go to a smaller staff, most of the overhead costs remain the same (e.g., the lease) so the chain is forced to eat those costs until people start buying again. That’s difficult when the items you sell are not necessities.

Further, the retail industry is extremely competitive. Consumers may be swayed to another department store because of a big sale or another promotion.

Kohl’s handles national brands so there are times when the company competes over the exact same product that another department store chain is selling (i.e., imagine a pair of Levi’s jeans or a bottle of perfume). Price is a big differentiator.

Then, on top of everything else, there is the issues of taxation and trade policies. Most of the items Kohl’s sells are not made in the United States. There are import costs and possible taxes associated with those fees.

Kohl’s needs to price things low enough to be competitive, but high enough to preserve its profit margins. It is a balancing act and one that even very experienced companies don’t win.

Finally, Kohl’s has to make sure that it accurately predicts product trends and fashions, then markets those items effectively. If the company invests too heavily in a style that doesn’t take off or features garments in its ads that don’t get traction, it could end up with dismal sales and reduced revenue.

Kohl’s Stock Forecast Summary

Kohl’s is clearly hustling. The partnership with Land’s End may help bring more foot traffic to the store as will the ability to accept Amazon returns.

However, those ventures may not pay off if Kohl’s does not ensure the returns process is streamlined and make the items it sells appealing enough to keep those new customers coming back.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.