Kohl’s (NYSE: KSS) has multiple, potential positive catalysts that could enable its third-quarter results, due to be reported tomorrow before the opening bell, to beat expectations.
If the company’s results do surpass analysts’ consensus outlook, KSS stock could rise in the wake of the report.
Kohl’s Stock Catalysts Ahead of Earnings
In late 2017, Kohl’s and Amazon (NASDAQ:AMZN) announced a partnership. Under the deal, some of Kohl’s stores accepted returns of products purchased by Amazon and installed kiosks that display Amazon’s tech products.
Although rumors that the deal would lead to a takeover of Kohl’s by Amazon didn’t materialize, the partnership may have helped Kohl’s Q2 results beat expectations. Moreover, the partnership may have gained momentum last quarter as more consumers learned about it, enabling Kohl’s Q3 results to surpass expectations and boosting KSS stock.
Sears, Macy’s (NYSE:M) and J.C. Penney (NYSE:JCP) have all closed multiple stores this year, and Kohl’s Q3 results could certainly be boosted by those closures, as Cowen analyst Oliver Chen recently pointed out in a note to investors.
Meanwhile, on Kohl’s Q2 earnings conference call, its CEO, Michelle Gass, said the company “saw continued momentum in our national brand (and) a significant improvement in our proprietary brand performance.” To the extent that those trends accelerated beyond expectations, Kohl’s results could surpass analysts’ consensus outlook, enabling KSS stock to rise after the company reports its results.
Strong Holiday Season Expected
Macroeconomic trends have been strong this year, with unemployment at historic lows. Additionally, there is one more shopping day between Black Friday and Christmas.
As a result, the holiday season is expected to be quite strong, with Chen writing that, “strong momentum in consumer consumption will continue into the holiday season this year.”
Consequently, Kohl’s may issue stronger than expected guidance for its holiday season, providing another positive catalyst for KSS stock.
Can Kohl’s Emulate the Brick-and-Mortar Leader?
Walmart (NYSE:WMT) has invested a great deal of time and effort in its omnichannel program over the last 18 months. Among other things, the giant retailer has acquired multiple, sizable e-commerce players, greatly expanded its store pickup program, modernized its website, announced a partnership with Microsoft (NASDAQ:MSFT), and tested a partnership with Waymo, Alphabet’s (NASDAQ:GOOG,NASDAQ:GOOGL) self-driving car unit. The initiatives are credited with boosting Walmart’s digital sales and/or have greatly improved investors’ view of Walmart stock.
Although Kohl’s is launching personalization initiatives that utilize digital technology and tested a store pickup program, it does not appear to have spent nearly as much time or money on beefing up its omnichannel program as Walmart has.
Although Kohl’s, with $1 billion in cash as of the end of Q2, can’t spend nearly as much money as Walmart on digital initiatives and acquisitions, it can make at least a couple of deals, partner with major tech companies other than Amazon, and launch additional omnichannel initiatives. If KSS announces that it’s emulating WMT in any of these areas, KSS stock could rise significantly tomorrow.
Bottom Line on KSS Stock
Here’s the thing: KSS stock has room to rise in the wake of its results, as its forward price-earnings ratio is only 12! By contrast, Walmart stock has a forward price-earnings ratio of 20.5, Target (NYSE:TGT) stock’s forward multiple stands at around 14 and TJX (NYSE:TJX) stock has a forward multiple of 18. Kohl’s stock is definitely not as richly valued, but it deserves to trade higher than its current perch. Third-quarter earnings should prove the KSS stock bull thesis.
As of this writing, Larry Ramer did not own shares of any of the companies named.