Everyone’s crowing about the company’s performance in fiscal 2019, but it showed almost no growth, and reported less net income than in fiscal 2018. Kohl’s did cover the $2.68 per share dividend of KSS stock (which was hiked 10% from the previous year) two times over with its earnings, and KSS stock has a handsome yield of 3.78%.
But repeating the trick will be a struggle, and the dividend is the only reason to like KSS stock.
Gass is a former chief of staff at Starbucks (NASDAQ:SBUX), and mother of the “Frappuccino,” which gets the company $3-$5 for what’s basically coffee, milk and sugar. She has been with Kohl’s since 2013 and became CEO last year.
She is already taking bows.
Her success starts with Amazon. People can return the products they bought on AMZN at Kohl’s stores, which is great when there’s no UPS (NYSE:UPS) stores around. In some Kohl’s stores, consumers can buy Amazon merchandise, like Kindle readers.
Then there’s the downsizing of the stores, a move whose success is uncertain. Parts of ten Kohl’s locations will be given to Planet Fitness (NASDAQ:PLNT), and that number could be increased in the future. Parts of Kohl’s stores have become Under Armour (NYSE:UAA) outlets.
The idea is to make Kohl’s a place that suburban women visit regularly. Increase visits and you increase sales. Gass has recognized that clothing is not a destination, that people don’t shop as much as buy, that convenience at least gives her a shot at keeping customers.
But this is not a strategy of strength. It’s built on weakness. Kohl’s can no more make it on its own than Penney’s can. KSS has too much real estate. The sharing is mainly a way of paring back its commitment to space without closing outlets.
Can Kohl’s Grow?
The question investors should be asking is whether Kohl’s can use this strategy to grow.
It depends on what you want to grow.
Gass was lucky to inherit a retailer with a strong balance sheet, and she has made the balance sheet stronger, cutting Kohl’s long-term debt from nearly $2.8 billion to $1.86 billion. This means the company’s operating-cash flow, which came in at $2.1 billion last year, can support the dividend and repurchase KSS stock , making its earnings look better.
The Bottom Line on KSS Stock
Michelle Gass is a good retailer, but she”s a better self-promoter. The strategy she has chosen for Kohl’s has led to short-term success, but she has yet to demonstrate that it will enable KSS to grow.
KSS stock is still a name that investors buy for income. They can buy the dividend but, unlike with some stocks, they shouldn’t just sit on it. KSS is navigating through stormy retail seas, and while it’s coping with the waves right now, uncertainty is everywhere in retail.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.