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Kohl's (KSS) Poised on Robust Online Business & Partnerships

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Strength in e-commerce operations and prudent partnerships are working favorably for Kohl’s Corporation (KSS - Free Report) . Moreover, the company’s strategic framework introduced in October 2020 is noteworthy. That being said, higher costs are a headwind.

Let’s delve deeper.

What’s Working in Kohl’s Favor?

Kohl’s is benefiting from its growing digital business, especially amid pandemic-led customers’ increased shift to online shopping. During first-quarter fiscal 2021, digital sales increased 14% year over year and surged more than 40% from 2019 levels. Given the need of the hour, management has been ramping up digital marketing and enhancing its website to meet customers’ demand. We note that the company’s solid endeavors to boost mobile traffic have augmented the adoption of the Kohl app, making it a vital constituent of online sales. To improve online offerings, Kohl’s has been expanding e-commerce fulfillment centers as well as strengthening in-store pickups. The company’s Buy Online, Pickup In Store; Buy Online Ship to Store; curbside pickup and Amazon Returns initiatives are noteworthy.

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We note that Kohl’s has been strengthening its ties with retail giant Amazon (AMZN - Free Report) to drive traffic. According to this program, Kohl’s stores accept free, unpackaged and easy returns for customers of Amazon. The company is impressed with the 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. Management plans to open 200 Sephora at Kohl's stores during 2021. Also, the company’s online beauty selection on Kohls.com will exclusively feature an extensive collection of Sephora's prestige product offerings beginning Aug 1, 2021.

Strategic Framework Holds Promise

Kohl’s is committed toward its 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 the active and casual lifestyle. Also, it expects to reignite growth in women’s business and build a significant size 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. In this regard, the company is on track to increase dedicated space and store, widen its product assortment along with capitalizing on whitespace opportunities in athleisure as well as in inclusive sizing.

Apart from these, Kohl’s is undertaking strategic efforts to solidify its omnichannel business, with its investments yielding solid results. Moving on, the company intends to achieve its operating margin goal of 7-8% by 2023 through modest level of growth, ongoing transformational margin initiatives and focus on operational excellence. Kohl’s expects to achieve this target via gross margin as well as selling, general and administrative (SG&A) expenses efficiency. Finally, Kohl’s is committed toward disciplined capital management by maintaining investment grade rating, generating robust cash flows and returning wealth to shareholders.

Hurdles on the Way

During first-quarter fiscal 2021, Kohl’s SG&A expenses increased 9.8% year over year to $1,170 million. In fact, management expects SG&A expenses to grow sequentially in fiscal second quarter. This is likely to be caused by higher investments in the Sephora partnership launch as well as expenses related to its store refresh activity.

That being said, we believe that the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company stay afloat amid such hurdles and maintain its growth trajectory.

Notably, shares of Kohl’s have rallied 34.8% so far this year compared with the industry’s growth of 62%.

Key Retail Picks

Dillard’s, Inc. (DDS - Free Report) , which sports a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 24.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Macy’s, Inc. (M - Free Report) which sports a Zacks Rank #1, has a long-term earnings growth rate of 12%.

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