Kohl's Cheers on Rising Comps & E-commerce, Expenses a Worry

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Kohl's Corporation KSS has been riding on rising comps, fueled by effective strategies to drive sales and brand performances. Well, shares of this renowned department store chain have rallied 48.6% in the past six months compared with the industry 's rise of 37.2%. Let's take a closer look at the company's initiatives and see if it can add more laurels to its growth story.

Effective Sales Driving Strategies

Kohl's has been striving to attract more shoppers and improve sales. In fact, such efforts have been aiding the company to deliver positive comps since the past three quarters, thereby driving its overall performance. Incidentally, comps increased 3.6% during first-quarter fiscal 2018, following a rise of 6.3% and 0.1% in the fourth and the third quarters of fiscal 2017, respectively. Strong comps indicate that the company's strategic initiative, Greatness Agenda, has been yielding favorable results. The initiative, which commenced in first-quarter fiscal 2014, was designed to drive transactions per store and sales. We expect such endeavors to continue driving the company's comps performance in the forthcoming periods.

Additionally, the company's sustained focus on technology improvements and omnichannel expansion have been positively impacting online sales. Markedly, online sales surged 20% year over year during the first quarter. In order to further improve its online offerings, Kohl's has been expanding its e-commerce fulfillment centers. Additionally, it focuses on strengthening its in-store pickups.

To top these, Kohl's has been strengthening ties with retail giant Amazon AMZN to drive traffic. Incidentally, the company has started accepting returns for Amazon customers on select products and also provides free packing and shipping services for the merchandise to fulfillment centers. Moreover, Kohl's sells Amazon devices, accessories and smart home products across certain select store locations. In the long run, the company is expected to receive significant boost to its business through this partnership. Further, Kohl's recent association with Aldi is expected to strengthen store base and boost sales.

Apart from these, Kohl's also regularly introduces new brands to keep the inventory assortment fresh and attract customers to its stores and website. In line with its strategy to draw customers, Kohl's revealed plans to launch a fresh apparel collection - POPSUGAR at Kohl's - in September. The company also announced plans to launch brands in the toys category.

Rising Expenses a Concern

Kohl's has been experiencing rising selling, general and administrative (SG&A) expenses for a while now. In fact, SG&A expenses increased 3.7% during first-quarter fiscal 2018, preceded by a 7.3% and 1.4% rise during the fourth and the third quarters of fiscal 2017. Further, management expects SG&A expenses to rise in the bracket of 1-2% during fiscal 2018.

Although surging SG&A expenses pose the risk of hurting profitability, we expect Kohl's sales-driving efforts to suitably cushion the company. Additionally, the company's speed and localization initiatives have been gaining traction and aiding inventory management as well as margin performance. Advancing with such well-planned endeavors, we expect this Zacks Rank #3 (Hold) company to continue to be in investors' good books.

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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 , BURL , DRI , KSS

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