Among the traditional big-box retailers, Kohl’s Corporation (NYSE:KSS) is definitely not my top pick. KSS stock is also not an obvious short barring a true “death to retail” that won’t manifest in the way that bears think it will.
On a year-to-date basis, KSS hasn’t been hit as hard as Macy’s Inc (NYSE:M), which readers know I hold a small position in. KSS stock is down just 11%, which isn’t exactly a reason to jump for joy, but it means Kohl’s has outperformed the overall retail department store cohort, which is down 20% for the year. Macy’s has fared worse and is down 43% for the year, despite a promising third quarter and upcoming holiday season.
After the large decline at the beginning of the year, KSS has managed to stave off a steep drop-off, with the stock bumbling around in the mid-30s and low 40s.
The numbers show why.
KSS’s Third Quarter
All in all, KSS posted a decent quarter, eking out positive comparable sales growth of 0.1% that was attributed to momentum continuing from the first half of the year. The company also benefited from “strong sales in the second half of October.” Note though, that on a consolidated nine-month basis, comparable sales growth drops into negative territory, however slight.
Make no mistake though, this is still a business in decline and on the ropes. The changing secular trends and impact of powerhouse online retailers will only strengthen. So even trading at a seemingly reasonable 11.7x trailing earnings multiple, KSS is not a screaming buy.
KSS Stock Deserves Some Credit
Despite my lukewarm opinion on KSS stock as an investment, I will give credit where it is due.
Instead of trying to reinvent the wheel and go the e-commerce route on its own internal platform, KSS has smartly partnered with Amazon.com, Inc. (NASDAQ:AMZN) to leverage AMZN’s customer base and Kohl’s brand lineup.
In measured pilot program fashion, 1000-square-foot mini store-within-a-store concepts have been rolled out across 10 Kohl’s stores in the urban Los Angeles and Chicago areas. In clean layouts featuring AMZN devices like the Amazon Echo, Echo Dot and Amazon Fire TV, customers can see first hand how these devices are worthy additions to their homes from management, entertainment and security angles.
And in line with the convenience that AMZN has conditioned consumers to expect, KSS customers are able to take advantage of free Amazon returns as needed.
While it’s at the very least a great PR opportunity for KSS, from a P&L standpoint, AMZN seems to get more from the partnership than KSS. Kohl’s may get a decent cut for every device sold, but these are relatively small-ticket items from a pricing standpoint that it might otherwise display in the same floor space.
Bottom Line on KSS Stock
The changing competitive landscape and consumer behavior, without the downside protection of real estate ownership that Macy’s has, keeps me firmly on the sidelines.
My guess is that KSS stock continues to be range-bound and finishes off the year hovering around the $40-per-share mark.
There are better investments out there any way you cut it. From a bottom-up or more macro approach, there are better businesses and more compelling value stocks, retail and otherwise.
As of this writing, Luce Emerson was long Macy’s stock.