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Kohl's (KSS) Strategic Efforts Aid Growth, Risks Persist

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Kohl's Corporation (KSS - Free Report) currently boasts solid prospects based on strength across its businesses, a strong liquidity position and digital initiatives. However, the company has been subject to rising operating costs and expenses amid a high inflationary environment.

This Zacks Rank #3 (Hold) company has a market capitalization of $2.4 billion. In the past three months, it has lost 11.1% compared with the industry’s decline of 9.4%.


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Let’s delve deeper.

Factors Favoring Kohl's

Kohl’s is making steady progress toward its 2023 key priorities, which include improving customers’ experiences, simplifying value strategies, undertaking disciplined inventory and expense management and solidifying the balance sheet. For instance, the company is focusing on creating an exciting in-store experience, customer gifting and driving digital growth. It is also focusing on expanding and growing Sephora. With respect to its value strategies, management is focusing on simplified pricing and greater consistency in its marketing efforts.

A focus on these priorities has been benefiting the company. Management expects an operating margin of approximately 4% in fiscal 2023, up from 1.4% recorded in the year-ago period. Also, it projects adjusted earnings per share in the range of $2.10-$2.70 against a loss of 15 cents per share reported in the year-ago period.

Kohl’s has been growing its store portfolio and accelerating digital business growth. The company has been expanding its e-commerce fulfilment centers and 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. The management has also been speeding up its digital marketing and enhancing its website to cater to customers’ needs.

The company is focused on strengthening ties with its strategic partners. In the first quarter of fiscal 2023, Kohl’s store business witnessed productivity gains, with Sephora at Kohl’s continuing the sales momentum. Total beauty sales grew 150% in the first quarter. Management expects to have a presence of Sephora at more than 900 of Kohl’s shops by the end of 2023, which includes 860 full size and 50 small format shop-in-shops.

Factors Affecting the Company

KSS has been witnessing softness in the home category of late. This could be accountable to the fact that the company entered the year with leaner inventories in the home category, which in turn received fewer benefits from Kohl’s clearance activities.

Also, rising operating costs and expenses have been a major concern for the company over the past few quarters. For instance, in the first quarter of fiscal 2023, Kohl's gross margin continued to be affected by product cost inflation and increased shrinkage.

For the fiscal second quarter, it anticipates its gross margin to decline year over year owing to faster goods clearance. In the second quarter, selling, general and administrative expenses are expected to increase by 3-4%, which includes investments associated with Sephora openings and store-related investments.

Owing to the major macroeconomic headwinds and its expected impact on business, management provided weak net sales guidance for fiscal 2023. For the full year 2023, Kohl’s expects net sales to decline 2-4%, which includes the impact of a 53rd week.

Stocks to Consider

Some better-ranked stocks are Urban Outfitters, Inc. (URBN - Free Report) , Abercrombie & Fitch Co. (ANF - Free Report) and Celsius Holdings, Inc. (CELH - Free Report) , all of which sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products.

The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales and earnings per share suggests growth of 4.9% and 53.7%, respectively, from the corresponding year-ago reported figures. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.

Abercrombie & Fitch operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales suggests growth of 3.4%, while earnings per share are expected to rise by 660% from the corresponding year-ago reported figures. ANF has a trailing four-quarter earnings surprise of 480.6%, on average.

Celsius Holdings specializes in commercializing healthier, functional foods, beverages and dietary supplements.

The Zacks Consensus Estimate for CELH’s current financial-year sales suggests 67.9% growth, while earnings per share are expected to rise by 154% from the corresponding year-ago reported figures. The company had an earnings surprise of 81.8%, in the last reported quarter.

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