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Kohl's to Expand Stores & e-Commerce, Plans Rightsizing

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Kohl's Corporation (KSS - Free Report) has recently announced plans to expand the capabilities of its e-Commerce network and also invest in store base by opening four new small format stores. The company is also focused on optimizing and rightsizing store space across a number of Kohl's outlets.

Store and Facility Development Plans

Kohl's plans to commence shipping operations of it’s recently opened fifth e-Commerce fulfillment center in Plainfield, IN by the end of this month. The centre would mainly cater to filing, processing and shipping of orders from its website, Kohls.com. The 937,000 square feet facility is well equipped with advanced technology for maximizing throughput and productivity.

Additionally, the company plans to launch four small format stores in October 2017, adding to its existing fleet of eight small format stores that were opened in 2016. The new stores would be located at North Smithfield, RI; Blue Ash, OH; East Windsor, NJ and Montebello, CA. The new stores would be close to 35,000 square feet in size.

Owing to their small size, these stores will be flexible and can easily be adapted for localized merchandise. Moreover, these stores will have kiosks for online shopping from Kohl's website and would also serve as pick up locations for online purchases.

Kohl's store development plans also incorporate optimizing and rightsizing store space to better serve customers and also operate in a more efficient manner. The company has plans to lessen operations in half of its stores by the end of 2017. This would require the stores to balance its inventory and adjust fixtures.

In this respect, the company has already optimized store space in close to 300 stores to include new layouts, making them operationally smaller. Rightsizing initiatives also include opening a single-level 55,000 square feet store in Greenfield, WI, relocating the same from its existing two-level 85,000 square feet store located nearby at Southridge Mall.

Initiatives to Improve Sales

Kohl's has also been undertaking a number of initiatives to attract more shoppers to its stores and improve sales. Lately, the company has started offering famous brands from outside the United States and cutting down on the number of in-house clothing brands it sells. Kohl’s has started selling Under Armour products, as well as Clarks shoes and is looking for other brands to add to its store aisles.

The company also plans to continue its best-selling private-label brands such as Sonoma, Croft & Barrow and Apt. 9 that had delivered strong sales in the recently reported second-quarter fiscal 2017 results. Kohl’s has also been undertaking several initiatives to reduce its inventory and improve merchandise margins that benefited the company’s second-quarter earnings.

Lower Comps Posing Concern

Despite such efforts to boost sales and store traffic, the company’s comps have been declining over the past few quarters. Lower spending on apparel and accessories, competition from discount retailers and cautious consumer spending are hurting sales at department stores. This signals that its turnaround initiative named “Greatness Agenda,” which began in 2014, is failing to deliver results.

The initiative was designed to increase transactions per store and sales. Though the plan has helped the company to deliver positive comps in all the four quarters of fiscal 2015, the quarterly growth rates moderated gradually, thus posing a concern. Moreover, comps have now declined consecutively in the last six quarters, including the recently reported second-quarter fiscal 2017 results.

These headwinds are well reflected in the company’s share price performance. The stock has declined 15.1% in the past year, in comparison to the broader Retail-Wholesale sector, which grew 10.6%.

Given the industry-wide challenges impacting Kohl's comps growth, investors need to wait and see whether its ongoing store expansion and rightsizing efforts prove to be effective.

Kohl's currently carries a Zacks Rank #3 (Hold).

Do Retail Stocks Interest You? Check These

Investors may also consider stocks such as Best Buy Co., Inc. (BBY - Free Report) Burlington Stores, Inc. (BURL - Free Report) and Big Lots, Inc. (BIG - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Best Buy delivered an average positive earnings surprise of 33.8% in the trailing four quarters. It has a long-term earnings growth rate of 11.8%.

Burlington Stores delivered an average positive earnings surprise of 13% in the trailing four quarters. It has a long-term earnings growth rate of 15.9%.

Big Lots delivered an average positive earnings surprise of 83.1% in the trailing four quarters. It has a long-term earnings growth rate of 13.5%.

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