Kohl's Corp (KSS) Gains Despite Headwinds: Should We Hold?

Despite the prevailing headwinds, Kohl’s Corporation (NYSE:KSS) has exhibited a bullish run in the index over the past one year. We noted that in the said period the stock has surged 14.9% and comfortably outperformed the Zacks categorized Retail-Regional Department Stores industry, which showcased growth of just 7.2%. We believe there still much momentum left in the stock, which is quite evident from its VGM Score of “A” and long-term earnings growth rate of 8.8%.

What further makes us optimistic about its performance in the near term is its uptrend in estimates. The Zacks Consensus Estimate for fiscal 2017 and 2018 has been rising over the past 30 days. Estimates rose 1.8% to $3.93 in fiscal 2017, while it increased 1.9% to $4.21 in fiscal 2018 over the past 30 days.

The retailer delivered better-than-expected earnings and revenues in the third quarter of fiscal 2016 on Nov 10, amid a difficult sales scenario. In fact, the company has delivered positive earnings surprises in three out of the last four quarters, making for an average positive surprise of 6.2%. During the third quarter, earnings increased 7% driven by better expense management. However, net sales declined 2.3% due to a challenging sales environment and soft comparable store sales.

KOHLS CORP Price, Consensus and EPS Surprise

KOHLS CORP Price, Consensus and EPS Surprise | KOHLS CORP Quote

We also note that Kohl’s Corporation’s turnaround initiative named “Greatness Agenda” is showing weakness of late. The initiative, which began in the first quarter of 2014, was designed to increase transactions per store and sales. Though the plan has helped the company to deliver positive comps in all the four quarters of fiscal 2015, the quarterly growth rates moderated gradually, thus posing a concern. Moreover, comps declined in the first three quarters of fiscal 2016. This is raising concerns over the near term.

The company is also witnessing lower spending on apparel and accessories, dwindling store traffic, competition from discount retailers and cautious consumer spending are hurting sales at department stores.

Nevertheless, we believe the concerns are short term and therefore leave space for this Zacks Rank #3 (Hold) company to rebound in the long run. The company also remains optimistic on its initiative for the long term. Further, Kohl’s is making continuous efforts to improve its base business and gearing up for the holiday season.

We expect the aforementioned factors to help the company sustain its strong momentum and stay afloat even amid difficult times. Hence, we suggest investors to hold on to the stock as the rest is a wait-and-watch story.

Stocks to Consider

Some better-ranked stocks in the broader retail sector includes Best Buy, Inc. (NYSE:BBY) , Tilly’s Inc. (NYSE:TLYS) and The Children's Place, Inc. (NASDAQ:PLCE) . All of them sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While Best Buy has an expected earnings growth rate of 11.39%, Tilly’s and Children’s Place’s have an expected earnings growth rate of 15.50% and 10.33%, respectively.

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