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Hot Income Stock: Brand Evolution Is Key At Kohl's

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F riday's employment report confirmed some economists' stance that the U.S. economy is headed for a soft patch. The jury's still out on that, but you wouldn't know it by looking at recent price action for department store operatorKohl's ( KSS ). Its relative price strength has been impressive of late, seemingly immune to growing concerns about the underlying health of the economy.

Kohl's operates 1,164 stores in 49 states. Shares gapped up more than 6% on February 4 after the company announced preliminary fourth-quarter results. Later in the month, Kohl's reported profit of $1.83 a share, up 17% from a year ago. After five straight quarters of declining sales growth, sales rose 4% to just over $6.32 billion. Same-store sales rose 3.7%.

The fourth quarter was a heavy promotional period for many retailers, but gross margin at Kohl's held its own, falling just 10 basis points to 33.9%. Operating margin expanded 30 basis points to 10.3%.

Brand evolution is important to many retailers, and it's no different at Kohl's. Its focus now is on the health and wellness market. With its partnerGaiam ( GAIA ), a leading yoga, fitness and wellness company, Kohl's is launching an exclusive women's apparel collection later this month.

Fitbit fitness-tracker wristbands are flying off the shelves. The company has also been beefing up its health-and-wellness offerings in the home department with Omega juicers and Ninja food processors.

Kohl's is expecting the new focus to generate $1 billion in sales over the next three years.

It recently paid a quarterly dividend of 45 cents a share, giving it an annual yield of 2.3%. Its dividend growth rate is 13%, on par with recent quarterly dividend hikes of 15% and 11%.

Headed into Monday, Kohl's industry group -- Retail-Department Stores -- ranked in the top quartile of IBD's 197 group rankings based on six-month price performance.

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


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

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