Kohl's Stock Doubles in a Year: Is There More Room to Run?

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Investors must take note of Kohl's Corporation 's KSS stupendous bull run. The company, which has been progressing ahead with its robust sales-driving initiatives, has seen its stock rally a significant 100.8% in a year's time. In fact, Kohl's also surpassed the industry 's solid growth of 74.3%. Although the company is incurring high SG&A costs, we expect its traffic and sales driving efforts to wipe off these woes and help it grow further.

Kohl's Driving Factors

Kohl's has been trying hard to attract more shoppers and improve sales. In fact, such efforts have been aiding the company deliver positive comps since the past three quarters, thereby driving its overall performance. Strong comps indicate that the company's strategic initiative, Greatness Agenda, has been yielding favorably. The initiative, which commenced in first-quarter fiscal 2014, was designed to drive transactions per store and sales.

Additionally, the company has been strengthening its ties with retail giant Amazon AMZN to drive traffic. Incidentally, the company has started accepting returns for Amazon's customers on select products and it will also provide free packing and shipping services for the merchandise to Amazon's fulfillment centers. This move followed Kohl's decision to sell Amazon devices, accessories and smart home devices in 10 selected stores in Los Angeles and Chicago. In the long run, the company is expected to receive significant boost to its business through this partnership. Further, Kohl's recent partnership with Aldi is also expected to strengthen its store base.

We also expect Kohl's to continue gaining from its strong brand portfolio.  Exclusive brands such as Simply Vera by fashion designer Vera Wang have helped draw customers to Kohl's stores in the past. Moreover, brands like Adidas ADDYY and Nike NKE have particularly been doing well in the active category. Kohl's also regularly introduces new brands in order to keep the inventory assortment fresh and drive traffic.  In line with this strategy, Kohl's revealed its plan to launch a fresh apparel collection named POPSUGAR at Kohl's, which is likely to expand Kohl's millennial brand portfolio and help the company identify customers' needs more accurately.

Moreover, the company has experienced significant growth in its e-commerce business since the last few years. In order to improve its online offerings, Kohl's has been expanding its e-commerce fulfillment centers and opened its fifth facility in August 2017. Additionally, it focuses on strengthening its in-store pickups. The company's sustained focus on technology improvements and the omnichannel expansion are expected to have a significant positive impact on its online sales that surged 20% during the first quarter.

Backed by such efforts, Kohl's comps increased 3.6% during first-quarter fiscal 2018, with revenues up 3.5%. Moreover, solid top-line performance along with effective inventory management propelled gross margin to expand 50 basis points. Notably, with the first-quarter fiscal 2018 results, Kohl's marked its fourth consecutive top-line beat, while earnings came ahead of estimates for the second successive time. While management expects SG&A expenses to rise in the bracket of 1-2% during fiscal 2018, the aforementioned endeavors and management's earnings guidance keep us confident about Kohl's ongoing prospects.

Well, this Zacks Rank #3 (Hold) company expects adjusted earnings for fiscal 2018 to come in the band of $5.05-$5.50 per share. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: AMZN , KSS , NKE , ADDYY

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