Editor’s Note: This article has been updated to reflect the correct spelling of Kohl’s CEO Michelle Gass.
Kohl’s (NYSE:KSS) shares fell hard at the start of the pandemic, losing half their value in a matter of weeks. They haven’t gotten it back. KSS stock opens for trade today at just a little over $24 and share a market cap of $3.6 billion.
Sales were $20 billion last year but should total just $17 billion this year. Losses during the pandemic quarter, when the stores were forced to close, came to $3.51 per share. The forecast loss for the latest quarter is 71 cents.
Kohl’s raised cash early and had $2.4 billon of it in July. But even before the pandemic it had what was called a strained balance sheet. Its rating was downgraded early in the pandemic and the situation is worse now.
Kohl’s is now worth just one-fifth sales, in a world where profitable retailers sell for half sales and leaders like Walmart (NYSE:WMT) sell for 80% of sales. If it can get anywhere near normal this stock a bargain.
Can it?
A Closer Look at KSS Stock
Despite the numbers, Bank of America (NYSE:BAC) is maintaining a buy rating on KSS stock. The debt is still investment grade. Analyst Lorraine Hutchinson expects margins to return to pre-pandemic levels.
Even before the pandemic CEO Michelle Gass was struggling to adapt to the changes made by e-commerce. Kohl’s runs large stores that anchor strip malls the way grocery stores did back in the day.
The chain had been a discounter of clothes and domestic supplies. They were a combination of TJX Companies (NYSE:TJX) chains like Marshall’s, T.J. Maxx, and Homegoods.
But Gass saw the stores underperforming. They were too big. People weren’t browsing or, if they were, they were doing it with their fingers at home. Gass decided to downsize selection and rent out pieces of the stores to companies that would draw traffic.
Her first move was to stock Under Armour (NYSE:UAA), which had lost many of its sports equipment outlets to bankruptcy.
This was a move up-market, since the Under Armour shops were selling at retail, not at discount. Since then, Gass has added Land’s End products, once part of Sears, and expanded toy selection after the Toys R Us bankruptcy. Kohl’s steps in where there are gaps in the market.
Gass’ most controversial move was to have Amazon.Com (NASDAQ:AMZN) take returns at its 1,200 stores. Shoppers can also pick-up orders at Kohl’s, which Gass says makes it “an omnichannel fulfillment center.” The idea is to “lean-into” e-commerce as a way of supporting KSS stock.
Gass says its development accelerated by five years during the pandemic, and won’t go backward after.
Gass has also rented out part of some stores to Planet Fitness (NASDAQ:PLNT). She has created Kohl’s Wellness Market, a store within the store to sell wellness and beauty goods.
The idea with all these moves isn’t just to make Kohl’s itself smaller. It’s also to drive traffic, getting people to see a visit to Kohl’s as a regular part of their daily lives. This gives Kohl’s a chance to gauge their needs and sell them what they want.
The Bottom Line
I often say that I bet the jockey more than the horse, especially when it comes to retailers. The jockey at Kohl’s is one of retailing’s top innovators, Michelle Gass.
Gass has been running Kohl’s since 2018. Before that, her career featured a turn at Starbucks (NASDAQ:SBUX) where, among other things, she ls credited with creating the “Frappuccino.” BizTimes named her its “executive of the year” for 2019.
The point is that James Cash Penney isn’t walking through that door. If anyone can get Kohl’s out of the ditch, it’s Gass.
At the time of publication, Dana Blankenhorn had long positions in BAC and AMZN.
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. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.
