Kohl’s Corporation (NYSE:KSS) is riding high after a successful Christmas shopping season. KSS stock recovered from the fear of an Amazon.com, Inc. (NASDAQ:AMZN) takeover that swept the entire retail industry.
Now that Christmas has ended and the stock has risen significantly, many wonder what’s next for the off-mall retailer. In my view, both the time of year and the recent run-up indicate Kohl’s stock is due for a pause in the near term.
KSS Stock Had a Merry Christmas
No doubt exists that Kohl’s enjoyed a good Christmas season. Sales increased 6.9% from the same two-month period in 2016. It also compared well to its mall-bound competitors J C Penney Company Inc (NYSE:JCP) and Macy’s Inc. (NYSE:M). It even beat out stand-alone peers such as Target Corporation (NYSE:TGT) who saw only modest increases for the same period.
These high sales levels will also likely show up in the upcoming earnings reports. In its January update, Kohl’s raised its 4th quarter and full-year earnings outlook. The company now expects to earn $3.98-$4.08 in fiscal 2017, up from the previous estimates. Analyst predictions had stood at $3.64 on average before the announcement.
Also, 2017 was the first Christmas season where Kohl’s had partnered with Amazon. The retailer has also begun selling clothing made by better-known brands such as Under Armour Inc (NYSE:UAA), Nike Inc (NYSE:NKE), and adidas AG (ADR) (OTCMKTS:ADDYY).
The move in Kohl’s stock price likely reflected all of these factors. KSS stock traded in the high $30s per share range as late as early November. Today, the price has moved close to $57 per share.
What Now for KSS Stock?
The question remains where does KSS stock go now that it’s busiest season has ended. Now that the next holiday season is ten months away, attention will likely shift away from the retail sector in the near term. Moreover, analysts estimates for fiscal 2018 and 2019 place profits at below the level of fiscal 2017.
Also, the current price-to-earnings PE ratio of KSS stock stands at about 15. While 15 is not a high PE, it exceeds that of Macy’s. Additionally, Target and Nordstrom, Inc. (NYSE:JWN) also trade in the mid-teens on a PE basis. And with no earnings growth predicted for the future, the stock trades at a level too high to attract bargain hunters.
That said, investors should not treat this valuation level as a sell signal either. The Kohl’s management team has turned the company around after years of lackluster sales. I expect the work to turn Kohl’s into a successful omnichannel retailer will continue.
Stock buyers should also note the dividend history for Kohl’s stock. KSS paid its first dividend in 2011. The company has increased this dividend every year since. Its current dividend yield stands at around 3.85%. The average S&P 500 stock currently yields a 1.75% return on dividends.
Since Kohl’s dividend history indicates dividends will continue rising, this should provide a compelling incentive to hold Kohl’s stock for the long term.
Concluding Thoughts on Kohl’s Stock
While the company improved both its online and in-store sales, Kohl’s stock will likely pause in the near-term. Its 6.9% same-store growth beat its store-based peers. This growth also drove the Kohl’s stock price to highs not seen since 2015 and brought higher earnings estimates.
However, the Christmas season has ended, and few analysts have forecasted the same level of improvements seen in 2017. That said, fears of Kohl’s demise have now subsided as it transitions to an omnichannel retailer. Its high dividend and string of dividend increases will also pay current shareholders well to wait for future gains.
Given the company’s improved marketing and product lines, the time will again come to buy Kohl’s stock, eventually.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
