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Kohl's (KSS) Benefits From Home Business & Strategic Efforts

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Focus on strategic priorities like improving customer experience and simplifying value strategies is working for Kohl’s Corporation (KSS - Free Report) . The specialty department stores retailer is on track with building its home business, which represents a solid growth opportunity. Strength in omni-channel capabilities has been a key driver.

Let’s delve deeper.

Strategic Efforts on Track

Kohl’s is impressed with its progress toward key priorities, including improving customer experience, simplifying value strategies, undertaking disciplined inventory and expenses management and solidifying the balance sheet. In this regard, management is focused on driving growth in gifting, Sephora, impulse, home decor and longer-term new stores to enhance customer experience. The company's solid partnership with Sephora to create a new era of elevated Beauty at Kohl's is noteworthy and generates impressive results. Taking into account this success, management expects Sephora at Kohl's to be worth $2 billion by 2025.

Kohl's is growing its loyalty programs, including Kohl's Cash, Kohl's Rewards and private-label credit cards. In the second quarter of fiscal 2023, management launched a co-brand credit card, which gives consumers more ways to earn Kohl's Rewards. Kohl's is on track with managing costs, focusing on lowering the marketing spend ratio and bringing more extraordinary technology into its operations to enhance productivity.

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Growing Home Category

Kohl’s is committed to growing its home business. In this regard, the company has formed new vendor relationships and invested in merchandising organizations. In the third quarter of fiscal 2023, management started to flow new products into stores like wall art, glassware, ceramic home decor, barware, botanicals and lighting, among others. The home business outperformed in-stores, courtesy of impressive initial performance across new categories. KSS envisions growing this category significantly on the back of expanded assortments.

Omni-channel Strength

Kohl’s is focused on growing its store portfolio and accelerating digital business growth. The company has been expanding its footprint with new stores to drive long-term growth. During 2023, management opened six new stores and concluded one relocation while closing down one store.  

Given the need of the hour, management has also been speeding up its digital marketing and enhancing its website to cater to customers’ needs. 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. Although online sales have been under pressure recently, we expect it to be a driver in the long run.

Cost Concerns Stay

Kohl's has been witnessing higher selling, general and administrative (SG&A) expenses for a while now. In the third quarter of fiscal 2023, SG&A expenses inched up 1.9% to $1,360 million. As a percentage of total revenues, SG&A expenses rose 235 basis points (bps) to 33.5% on continued investments in Sephora shop openings, wages and other store-related expenses. Although the company’s gross margin expanded in the quarter, it continues to be affected by product cost inflation. That said, we believe that the upsides mentioned above are likely to keep narrating Kohl's growth story.

The Zacks Rank #3 (Hold) stock has increased 26.6% in the past six months compared with the industry’s growth of 22.1%.

3 Promising Stocks

We have highlighted three better-ranked stocks, namely Abercrombie & Fitch (ANF - Free Report) , Gap (GPS - Free Report) and American Eagle Outfitters (AEO - Free Report) .

Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial year sales indicates growth of 13.3% year over year. ANF delivered an earnings surprise of almost 713% in the last reported quarter.

Gap, a fashion retailer of apparel and accessories, currently flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 137.9%, on average.

The Zacks Consensus Estimate for Gap’s current financial year earnings per share indicates growth of 387.5% year over year.

American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy). AEO delivered a trailing four-quarter average earnings surprise of 23%.

The Zacks Consensus Estimate for American Eagle Outfitters’ current financial year sales and earnings suggests growth of almost 4% and 39.2%, respectively, from the year-ago period’s levels.

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