When the novel coronavirus is over, Kohl’s (NYSE:KSS) stock will still be here.
Kohl’s revenue dropped 23% year-over-year for the quarter, and profits dropped nearly 80%. But revenues were $3.4 billion and there were profits of $47 million. Granted, that profit became a per-share loss of 25 cents after adjustments.
Kohl’s is currently trading just below $20, down from $49 at the start of the year. It has been fairly beaten down. The market capitalization is down to $3.1 billion, less than one quarter’s revenues.
So, is KSS stock a bargain?
The Bull Case for KSS Stock
There is a bull case to be made for Kohl’s.
For one thing, its stores aren’t in malls, but in out-parcels where successful retailers like Walmart (NYSE:WMT), Target (NYSE:TGT) and Costco Wholesale (NASDAQ:COST) live. Kohl’s was able to cut inventory quickly in the face of the pandemic, limiting its exposure. Online sales rose 58%.
CEO Michelle Gass also moved the stores’ Amazon (NASDAQ:AMZN) returns area, which has been active for a year, to the back of the stores. It’s like Kroger (NYSE:KR) keeping the milk in the back corner. Shoppers must go through the store if that’s all they want. Managers said the returns area has taught lessons about how the rest of their stores should operate.
Revenues were over 7% ahead of what analysts were estimating. As competitors continue to close, Kohl’s should gain market share. Holiday promotions will start in October, based on cozy, comfortable and practical gifts, but the stores will be closed on Thanksgiving.
Kohl’s is also moving fast online. Management said on its conference call that it knows where competitors have closed and can target those customers with precision. It will target through a new loyalty program, which has been in the works for a few years. Kohl’s has partnered with Snap (NYSE:SNAP) on a “virtual closet,” where shoppers can put together outfits and buy directly.
The Bear Case
The fall of KSS stock surprised analysts who didn’t think Kohl’s did half-bad.
The market has been flooded with impatient money by the Federal Reserve. Speculators want quick pops, and positive comps. They’re getting it from stores like Walmart, Target and Home Depot (NYSE:HD). They’re not getting it from Kohl’s. Most of retail’s big winners gained just 2%-3%, on average. Target shares gained more than 10% on what was called a “monster quarter.”
Management was also conservative in its guidance. They’re not expecting a V-shaped recovery, but more of an extended U. Full normalcy may not return for apparel stores until 2022. Unlike more essential merchants, Kohl’s had to close its stores during the lockdown.
The Bottom Line
If you’re a patient investor, with a three-year time horizon, I think your patience will be rewarded buying Kohl’s now. If it can just replicate earnings of 30 cents per share for a year, you’ve got a price-earnings multiple of just 17 times.
But there’s no rush. Most analysts expect the stock to go nowhere fast. The average price target at TipRanks is below Kohl’s current level, and more are saying sell it than buy it.
My guess is that if you put some Kohl’s in your Christmas stocking your kids will have a happy New Year. Kohl’s will survive, and eventually it may even thrive.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.