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Kohls: The Name for a Retail Rebound

Analysts who believe in a retail rebound for 2021 have focused on Kohl’s (NYSE:KSS). Since I last wrote glowingly about the company in mid-November, the stock is up 104%. KSS stock is currently trading around $49.58 a share, a market capitalization of $7.8 billion on expected 2021 revenue of $15 billion. That assumes the January quarter comes close to the expected $5.9 billion.

Image of Kohl's (KSS) logo on a Kohl's store

Source: Sundry Photography/Shutterstock.com

Key to the rise is CEO Michelle Gass, as I wrote when the move began in November. Since joining the company from Starbucks (NASDAQ:SBUX) in 2018, she has shown a willingness to try things.

Wall Street likes that. Heck, I like that.

Gass’ Big Moves

Before Gass arrived, Kohl’s was a discounter selling clothes and home goods. It lived in big strip mall locations, somewhere between Macy’s (NYSE:M) and Target (NYSE:TGT).

Gass has been breaking the stores up and has brought in full price merchandise. She set out a section for Under Armour (NYSE:UAA), which had lost its sporting goods channel to bankruptcy. She set up a section for Amazon.com (NASDAQ:AMZN) returns. She rented out parts of her stores to Planet Fitness (NYSE:PLNT).

Since the post-pandemic reopening, Gass has made more moves. She launched agreements with Land’s End (NASDAQ:LE) and, more recently, privately owned Eddie Bauer.  She has also partnered with LVMH Moet Hennessy Louis Vuitton’s (OTCMKTS:LVMUY) Sephora chain, which had previously been signed with the failed JC Penney.

The result is an updated version of the old department store, only with brands running the departments, and a substantial e-commerce effort. Online now represents about one-third of revenues. All Kohl’s stores now pack-and-ship Amazon returns and Gass says this has increased visits.

Stepping on Gass

The key to a fatter stock price will be a profit, something analysts expect to see for January, when results are announced March 2. The official estimate is about $150 million, or 97 cents per share, but the “whisper number” they’re giving out over drinks is $1.05 per share, which would be over $160 million. Before the pandemic hit, Kohl’s earned $265 million in its Christmas quarter.

Bullish analysts expect a big fiscal 2022, with sales growth of 17%, and profits of $2.62 per share. That would be enough to bring back the dividend, which was suspended during the pandemic but was previously 70 cents per share. If it can hit analysts’ earnings estimates, KSS stock would have a forward price to earnings ratio of just 18.

But there remain bears. Of 15 analysts now following Kohl’s at Tipranks, seven have it rated as a buy, seven as a hold and one is saying sell. More importantly, their average price target of $42.57 is about 14% below Kohl’s current price.

The Bottom Line on KSS Stock

Despite Kohl’s rising stock price, Michelle Gass still has doubters.

While Target and Walmart (NYSE:WMT) have focused on creating high-quality store brands, Kohl’s is closely tied to brand names. While Gap Stores (NYSE:GPS) and TJX (NYSE:TJX) focus their big strip mall locations on off-price, Kohl’s is going upscale in similar real estate. While most stores consider Amazon their enemy, Kohl’s has made it a friend.

The coming year will say a lot about this strategy. The upper middle class will be released from their work-at-home confinement with money to spend. Kohl’s is betting it can become essential to their new decade lifestyle. I think they’re right, but even if I’m not, I think Gass will adjust.

At the time of publication, Dana Blankenhorn directly owned shares in AMZN.

Dana Blankenhorn has been a financial 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 


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