Kohl's Up 36% In 6 Months: Can Strategies Drive It Further?

Kohl’s Corporation (NYSE:KSS) has been gaining from efforts to drive sales along with omnichannel initiatives, which boosted comps in the last reported quarter. Further, the company’s inventory and expense management efforts have also been yielding positive results. Owing to such upsides, shares of the company have gained 36.1% in the past six months, compared with the industry’s rally of 14.2%.

Comps Growth Initiatives Bode Well

The company’s comps witnessed year-over-year growth for the first time during the third quarter of fiscal 2017. Comps growth was primarily driven by the company’s partnership with Amazon.com (NASDAQ:AMZN) . Incidentally, Kohl’s has started accepting returns for Amazon’s customers on select products. This move followed Kohl's decision to sell Amazon devices, accessories and smart home devices in 10 selected stores in Los Angeles and Chicago. Per the company, the store-within-store concept will boost stores traffic, owing to the availability of Amazon’s diverse electronics options. Kohl’s will also provide free packing and shipping services for the merchandise sent to Amazon’s fulfillment centers.

Like Kohl’s, other major retailers such as Wal-Mart (NYSE:WMT) and Target Corporation (NYSE:TGT) are striving to boost their omnichannel capabilities and maintain their competitive position amid consumers’ shift toward digital and convenient shopping options.

Further, growth in comps further signifies that the company’s strategic initiative — Greatness Agenda — has started yielding positive results. The initiative, which commenced in first quarter of 2014, was designed to drive transactions per store and sales.

The company’s store sales are benefitting from enhanced focus on prominent brands such as Nike (NYSE:NKE) and Adidas (DE:ADSGN). These efforts helped Kohl’s gain significant market share in active apparel and footwear up until the third quarter. The company expects this trend to continue, on the back of assortment improvements.

Other Factors Aiding Performance

Kohl’s regularly introduces brands to keep the inventory assortment fresh and drive customer traffic to its stores and website. Popular launches include Fit Bed under active and wellness business and the Jumping Beans collection featuring Disney characters, amongst others. Further, Kohl’s has been undertaking several initiatives to reduce inventory levels. During the third quarter of fiscal 2017 inventory per store declined 2%, while units per store fell 4%, in line with the expectations for a low to mid-single-digit decrease for the year. Management continues to expect inventory to be down low to mid-single digits for fiscal 2017.

Factors Limiting the Company’s Performance

However, increased shipping expenses stemming from the growth in online business and increased reserves, having been posing concerns for the company. Incidentally, the company’s gross margin declined 30 basis points year over year in the third quarter, thanks to higher shipping costs.

Further, Kohl’s has been struggling with accessories and women’s business, due to a cautious consumer spending environment. Kohl’s competitive position has been low due to lack of exposure to markets outside the United States.

Bottom-Line

Nevertheless, we commend Kohl’s efforts to improve comp, which is expected to positively impact sales in the forthcoming quarters. Moreover, this Zacks Rank #3 (Hold) stock carries a VGM Score of A and has a long-term growth rate of 6.7%, indicating its inherent strength.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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