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Kohl's (KSS) Surges More Than 240% in a Year: 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 strategic framework is yielding. Notably, the stock has surged 247.2% in the past year compared with the industry’s rally of 201%. Moreover, shares have comfortably outperformed the Zacks Retail-Wholesale sector’s rise of 44.4% during the same period.

Online Business & Partnerships Solid

Kohl’s is benefiting from its growing digital business for a while now. Stellar digital sales added gleam to fourth-quarter fiscal 2020 performance. Impressively, digital sales soared 22% year over year and contributed 42% to net sales in the quarter. Management is ramping up digital marketing and enhancing its website to cater to customers’ needs, especially amid increased shift to online shopping amid the coronavirus outbreak. To improve online offerings, Kohl’s is expanding its e-commerce fulfillment centers along with strengthening in-store pickups. The company’s Buy Online, Pickup In Store; Buy Online Ship to Store and curbside pickup initiatives are noteworthy.

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. According to this program, Kohl’s stores accept free, unpackaged and easy returns for customers of Amazon. The company is impressed with performance of the Amazon returns program. One of the prime objectives of this program is to convert more customers as loyal Kohl’s shoppers. Further, the company's recent solid partnership with Sephora to create a new era of elevated Beauty at Kohl's bodes well. By 2023, the company expects to expand Sephora shops to at least 850 stores, with 400 locations projected to open in 2022.


Strategic Framework Aiding Growth

Kohl’s strategic framework 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 the active and casual lifestyle. Also, it expects to spur growth in women’s business and build a beauty business. This is likely to be aided by the recent alliance with Sephora. Further, Kohl’s is on track to grow its Active category from 20% to at least 30% of its business. Well, strength in the company’s core national brands; increased dedicated space in stores; expanding outdoor via prudent alliances like Eddie Bauer and strengthening of its athleisure opportunity through the launch of FLX and Cole Haan products are impressive steps in this direction.

Apart from these, Kohl’s is undertaking strategic efforts to solidify its omnichannel business, with yielding investments. Moving on, the company intends to reach its operating margin goal of 7-8% by 2023 with the help of modest level of growth, its ongoing transformational margin initiatives and continued focus on operational excellence. Kohl’s expects to achieve this target via gross margin as well as selling, general and administrative expense efficiency. Finally, the company is committed toward disciplined capital management by maintaining investment grade rating, generating robust cash flows and returning wealth to shareholders. Also, the company’s innovative and adaptive learning approach as well as focus on diversity and inclusion bodes well.

Hurdles on Way

Kohl’s is witnessing year-over-year decline in sales in the past few quarters. During fiscal fourth quarter, total revenues declined 10.1%, although the metric reflects sequential improvement. Net sales fell 10.1% in the quarter. Additionally, gross margin contracted 73 basis points to 32% in the quarter. The downside in the gross margin was caused by increased freight surcharges amid rising digital penetration.

Nevertheless, we believe that the aforementioned upsides are likely to keep supporting this Zacks Rank #3 (Hold) company’s performance.

Some Solid Retail Picks

Five Below, Inc. (FIVE - Free Report) , which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 32.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dillard’s, Inc. (DDS - Free Report) carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of almost 11%, on average.

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