Since the beginning of the year, Kohl’s Corporation (NYSE:KSS) has delivered good returns to its shareholders, up 23%–higher than the S&P 500’s return of more than 18.60%. Interestingly, Kohl’s Corporation (NYSE:KSS) is in the investment portfolios of several famous investors, including Zeke Ashton, Whitney Tilson and Brian Rogers. Let’s take a closer look to determine whether or not investors should buy Kohl’s Corporation (NYSE:KSS) at its current trading price.
High EBITDA margin with higher expected free cash flow
Kohl’s Corporation (NYSE:KSS) is considered to be one of the leading family-focused and value-oriented specialty department stores, offering different types of merchandises including accessories, footwear, etc., operating 1,155 stores in 49 states, along with 9 distribution centers in the U.S. Most of its sales (52%) came from private & exclusive brands, while the national brands accounted for the remaining 48% of the total sales.
In the past five years, Kohl’s Corporation (NYSE:KSS) experienced consistent growth in net sales, from $16.4 billion in 2008 to $19.3 billion in 2012. However, its net income has fluctuated in the range of $857 million to nearly $1.17 during the same period. In 2012, its net income came in at $986 million, or $4.17 per share, with EBITDA of around $2.7 billion. According to the company, Kohl’s Corporation (NYSE:KSS) enjoyed a much higher EBITDA margin than its peers. Its EBITDA margin has stayed in the range of 13.9% – 15.6% in the past five years, while the average EBITDA margin of its peers has been around 9.8% – 11.6%. In the past twelve months, Kohls’ EBITDA margin was as high as 14.2%, a bit higher than the EBITDA margins of The TJX Companies, Inc. (NYSE:TJX)’ at 14.02% and Target Corporation (NYSE:TGT) at 10.45%.
What I like about Kohl’s is its high cash return to its shareholders. At $52.90 per share, Kohl’s offers its shareholders a decent dividend yield at 2.6%. The company has repurchased around 11% of its shares last year and 16% in 2011. Looking forward, Kohl’s expects to invest in its omni-channel to drive its business growth. The e-commerce re-platform would enable the company’s ability to customize shoppers’ omni-channel experience, increasing the efficiency of adding products.
Kohl’s expects to ship from 200 of its stores by Holiday 2013 and implement the “pick up from store” service by 2014. Indeed, the company has been trying to strengthen its distribution network for online sales, increasing the efficiency for merchandise selection and inventory management. Since October 2012, its inventory has been reduced from $4.8 billion to nearly $4 billion in April 2013. The ongoing strategy might generate more cash flow for the company, allowing it to increase its dividend payments and share repurchases in the near future.