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Kohl’s: A Christmas (Comeback) Story?

The retailer is optimistic, but that didn't result in much last year

   

Holiday cheer is in the air thanks to the recent bout of retailers announcing promising plans for seasonal hiring. But while several companies contributed to the overall sentiment, the news seems particularly good over at Kohl’s (NYSE:KSS), where the positivity is a much-welcomed change.

While optimistic companies like Wal-Mart (NYSE:WMT) are building on what already was a better-than-expected Q2, Kohl’s previously had seen its share of struggles. So far this year, KSS earnings dropped year-over-year in both reported quarters — including a 20% fall in the second quarter thanks to weaker sales. Discounting also sliced the company’s margins, causing the company to lower its full-year outlook.

It’s no wonder that Kohl’s stock has seen paltry gains of 4% since January, just a third of the S&P 500′s advance.

However, that foray into the black is because of a late-summer rally that has propelled shares up 20% since late June — and considering all the positive buzz surrounding the stock, that climb could continue.

In August, for example, Kohl’s same-store sales grew an unexpected 3.4%, blowing away expectations of under 2%. And sales overall posted an improvement of 5%.

Now, Kohl’s thinks it will need more than 50,000 seasonal workers — a solid 10% increase from last year’s number. That seems to parse with the expected boom in growth for KSS’ fourth quarter to 20% from the current-quarter’s expected 9%.

So is it time to call it a comeback and get onboard Kohl’s in time for the holidays?

Well, first things first: From personal shopping experience, I can’t stand Kohl’s. I always go in expecting to find great deals and leave feeling disappointed. Anything not marked down seems overpriced, while the racks screaming clearance are overwhelmingly unorganized. And I find it nearly impossible to navigate its overcrowded stores.

But beyond my own disdain for the retailer, there’s at least a couple more reasons for hesitancy.

Kohl’s had a similarly optimistic attitude heading into the holiday season last year. It upped its hiring by around 5%, expected a 4% increase in same-store sales, raised its full-year outlook … and then it flubbed.

Holiday sales slumped, causing profits to plummet 8% in Q4, while same-store sales fell more than 2% — including a brutal 6% decline in November alone.

Kohl’s, of course, insists that things are different this time around, as it has implemented new marketing strategies, attempted to broaden its appeal beyond Kohl’s credit-card customers and plans to step up its discounting game this holiday season.

But while discounting sounds good to me, considering my usual woes with the store, that sure won’t help Kohl’s struggling margins.

Plus, I don’t seem to be the only one giving Kohl’s the cold shoulder — even with these supposed improvements. In August, when same-store sales got back on track, foot traffic remained negative. So the appeal might not be as broad as hoped. Many shoppers — like me — might have been so turned off by its old strategies that it won’t bother to give the new ones the time of day.

Still, Kohl’s has a few things going for it.

To start, the holiday season looks promising for retailers all around: Sales are expected to climb around 3.3%, foot traffic should grow around 2.8%, many think consumer spending is set to explode as it is and there are two extra weekends for shoppers to make all their holiday purchases.

If Kohl’s can merely ride the broader wave of consumer optimism, that would turn its holiday struggles from last year into a positive, as they mean easy year-over-year comparisons.

While I’ll knock Kohl’s in-store deals, the stock’s a decent bargain, trading at 10 times forward earnings — meanwhile, retailers including J.C. Penney (NYSE:JCP), Wal-Mart, Target (NYSE:TGT) and TJX Companies (NYSE:TJX) range anywhere from 13 to 18. Not to mention, you’re also getting a solid 2.5% yield on a dividend KSS started paying early last year.

Still, those attractions aren’t enough to quell my doubts about Kohl’s holiday sales, and I won’t believe those till I see them. Kohl’s expressed the same optimism heading into these highly anticipated holiday months last year, and things didn’t end up any better.

You know what they say: Fool me once, shame on you. Fool me twice, shame on me.

I’m sitting this Christmas comeback bid out.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2012/09/kohls-a-christmas-comeback-story-kss/.

©2014 InvestorPlace Media, LLC

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