Categories Analysis, Retail

Fresh recovery hopes emerge as Kohl’s strives to beat the slump

The stock rallied recently after a group of activist investors proposed major changes to the companies board of directors

For apparel retailer Kohl’s Corporation (NYSE: KSS), the pandemic could not have come at a worse time as the struggling business plunged to a new low in the early weeks of the crisis. Worse, the store operator languished in the negative territory since then as customers avoided discretionary spending. In contrast, the broad retail sector witnessed strong sales during the pandemic when people stocked up on essential commodities, concerned about the persistent uncertainty.

Nevertheless, the market has been kind to the company’s stock, which recovered at a steady pace after slipping to the lowest level in more than two decades. That is partly because Kohl’s performed better than expected in the last two quarters, though it suffered losses in the first half. KSS was in the spotlight once again when the stock rallied and crossed the $50 mark after a long time.

Board Reshuffle

The upturn can mainly be attributed to the intervention of a group of activist investors who nominated new directors to the company’s board of directors and proposed a reshuffle. According to the investor group, the current strategy is not good enough to streamline operations in a meaningful way and turn around the business. Meanwhile, the company in a statement rejected the proposal, terming it an attempt to seize control of the board and scuttle the growth initiatives. Earlier, it had unveiled a strategic plan to expedite growth and enhance profitability.

Meanwhile, the rally turned out to be short-lived and the stock pared most of the gains this week. The average target price indicates that a further downturn is in the cards for the rest of the year. While the dip in valuation could be an investment opportunity worth trying, analysts are pretty cautious in their outlook.

Holiday Relief

As per initial estimates released by the company, it generated earnings per share between $1.00 and $1.05 in the final three months of fiscal 2020, after excluding special items. That is far above the management’s expectation and analysts’ forecast. Overall, performance seems to have improved since the third quarter — when Kohl’s earned a meager one cent per share — though it added to the recovery hopes.

Comparable sales contracted at a slower rate during the holiday quarter, continuing the recent trend. As a result, net sales dropped 10%. It seems sales benefited from the efforts to increase the number of facilities carrying incremental inventory to fulfill digital orders. The final report is scheduled for release on March 2, before the opening bell.

Our omnichannel customer is six times more productive than a digital-only customer and four times more productive than a store-only customer. We were pleased to see a number of our store-only customers become omnichannel customers during this time and we expect this to continue as they enjoy the convenience of shopping digitally in addition to our stores. We are incredibly focused on evolving and elevating the customer experience across our store and digital assets.

Michelle Gass, chief executive officer of Kohl’s

Partnership

Earlier this month, the retailer clinched a partnership with Eddie Bauer, a specialist in outdoor performance wear, under which the products will be launched in Kohl’s stores in the fall of 2021. The arrangement complements the management’s efforts to enhance the active and lifestyle segment.


Read management/analysts’ comments on Kohl’s Q3 earnings report


Kohl’s stock closed the last trading session at $55.58, which is up 38% year-to-date and marks the highest value in the past 53 weeks. It traded down 4% in the early hours of Tuesday’s session.

Looking for more insights?

Read the full conference call transcript here. It’s free!

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