One of the largest department store chains in the United States, Kohl’s Corporation (NYSE:KSS) has over 1,100 locations. However, even with the tremendous rally in stocks this year, Kohl’s Corporation (NYSE:KSS) is still about 15% below its 52-week high, and even further below the $80-level where it was trading before the financial crisis. With a dividend yield of almost 3%, very solid and consistent revenue growth, and cheap valuation, is Kohl’s a good way to take advantage of the rise in discretionary spending that will undoubtedly accompany the improving economy?
Kohl’s Corporation (NYSE:KSS) specializes in moderately priced apparel, shoes, accessories, and household items. The company’s target customers are predominately women between 25 and 54 years of age, and they have had success with this target group using their “good, better, best” philosophy of differentiating its product lines based on price and quality. Kohl’s’ sales come from a mix of private and national brand merchandise, and almost exactly half of the company’s revenues come from each.
One of the fastest growing national chains, over recent years Kohl’s Corporation (NYSE:KSS) has increased its total square footage by over 7% annually. Kohl’s is slowing down their expansion somewhat, although it does plan on opening 12 new stores this year (down from 21 last year).
In Good Economies and Bad
Kohl’s is somewhat unique among retailers in that it seems to be relatively recession proof, and barely lost any revenues as a result of the financial crisis. Comparing Kohl’s Corporation (NYSE:KSS) revenues over the past decade with those of competitors J.C. Penney Company, Inc. (NYSE:JCP) and Dillard’s, Inc. (NYSE:DDS) and you’ll notice that the dip in Kohl’s Corporation (NYSE:KSS) revenue over the tumultuous 2007-2010 period and you’ll see what I mean. A lot of this is thanks to Kohl’s healthy balance sheet, which has a lot less leverage than most of its competitors, however more than some of the big discounters (more on this later).
In fairness, J.C. Penney Company, Inc. (NYSE:JCP) has been on a decline since the recession began due to poor management. Hopefully (for them), Mike Ullman’s return as CEO will help kickstart the turnaround of this once great company. Dillard’s, Inc. (NYSE:DDS), on the other hand, has historically relied on a more affluent demographic than the other companies here. Anything having to do with luxury items was hit hardest by the recession, and Dillard’s was no exception, with shares plummeting from their 2008 high of $40.56 to a low of just $2.50 the very next year. With shares currently just under $90, I wish I had the foresight to buy back then. Even though shares have recovered nicely, sales are still below their pre-recession level as seen in the chart below.