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Kohl's (KSS) Up More Than 95% in Three Months: Will Rally Stay?

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Kohl's Corporation (KSS - Free Report) looks well positioned courtesy of its lucrative partnerships and strong e-commerce business. Also, the company’s recently unveiled strategic framework is worth mentioning.

Notably, Kohl's shares have surged 97.9% in the past three months compared with the industry’s rally of 89.1%. Moreover, shares have comfortably outperformed the Zacks Retail-Wholesale sector’s rise of 0.5% during the same period.

Let’s dive deeper.

What’s Driving Kohl's Growth?

In October 2020, Kohl’s introduced a new strategic framework that focuses on four key areas — driving top-line growth, expanding operating margin, implementing disciplined capital management as well as undertaking an agile accountable and inclusive culture. Under its driving top-line growth initiative, the company intends to become the most trusted retailer of choice for active and casual lifestyle. Also, Kohl’s is undertaking strategic efforts to create loyalty and value along with providing a differentiated omni-channel experience for customers.

Notably, Kohl’s intends to reach its operating margin goal of 7-8% with the help of modest level of growth, its ongoing transformational margin initiatives and focus on operational excellence. Further, management is committed toward disciplined capital management. Also, the company’s innovative and adaptive learning approach as well as focus on diversity and inclusion bodes well.


 

Kohl’s is strengthening its ties with retail giant Amazon (AMZN - Free Report) to drive traffic. Incidentally, the company is benefiting from the rollout of its Amazon returns program nationwide. In December last year, management announced its plans to open Sephora shops inside Kohl’s stores. Well, Kohl’s expansive customer reach and omnichannel presence combined with Sephora's prestige service, product selection and remarkable experience in the beauty space bodes well for their partnership.

Apart from these, Kohl’s is benefiting from its growing digital business for a while. Notably, digital revenues contributed 32% to total sales and increased 25% year over year during third-quarter fiscal 2020. The upside can be attributed to customers’ increased shift to online shopping amid the coronavirus outbreak. Given the need of the hour, management is ramping up its digital marketing and enhancing website to cater to customers’ needs. Certainly, the company’s investments toward boosting online capabilities and improving consumer engagement are yielding. Management expects to keep leveraging its strong online presence.

Is All Rosy for Kohl’s?

Kohl’s is seeing rising selling, general and administrative expenses, as a percentage of total revenues, for a while. In the third quarter of fiscal 2020, the metric increased to 32.7% from 30.7% reported in the prior-year quarter. Moreover, the company’s gross margin contracted 48 basis points in the fiscal third quarter thanks to escalated shipping costs induced by higher digital sales penetration. During its last earnings call, management had stated that it expects gross margin to stay under pressure in the fiscal fourth quarter due to increased shipping costs, as it anticipates digital penetration to remain high along with incremental freight surcharges.

Nevertheless, we believe that the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company stay in investors’ good books.

Some Solid Retail Picks

Five Below, Inc. (FIVE - Free Report) , which sports a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 21%. You can see the complete list of today’s Zacks #1 Rank stocks here.

DICK’S Sporting Goods, Inc. (DKS - Free Report) , which sport a Zacks Rank #1, has a long-term earnings growth rate of 5.6%.

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