Kohl’s Corporation (KSS): This Retailer Has Four Major Problems

Published on June 3, 2013 at 8:19 am by The Motley Fool in News

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What I noticed is, Kohl’s has almost the same gross margin as Macy’s, Inc. (NYSE:M). The problem is, the shopping experience isn’t the same at the two stores. Macy’s is known for high-quality, high-service sales, Kohl’s is not.

A trip to Kohl’s involves walking in, getting a cart, shopping, standing in line, and checking out. This sounds a lot like Ross and Target, and not much like Macy’s. I believe Kohl’s is pricing themselves out of sales based on their gross margin. In the meantime, the company is spending too much on SG&A because they believe their experience requires it, when in reality they are just being inefficient.

Too slow and no flow

The two other big challenges facing Kohl’s Corporation (NYSE:KSS) are their high prices are hurting earnings growth, and their cash flow growth isn’t keeping up with their peers either. When it comes to earnings growth, Kohl’s ranks last with just a 7.9% expected growth rate in the next few years. By comparison, Target is expected to grow earnings by 11.6%, Ross is expected to grow by 12%, and Macy’s may grow by as much as 14%.

The difference is, these companies know their customer base and have prices to match. When it comes to cash flow, Kohl’s operating cash flow growth falls far behind most of their peers. Looking at just core operating cash flow (net income + depreciation), Kohl’s increased their cash flow by just 1.69% versus last year. Only Target saw worse growth, with an increase of just 0.86%. On the other hand, Macy’s increased their operating cash flow by more than 7%, and Ross reported an increase of better than 12%.

As you can see, Kohl’s is under-performing their peers. If Kohl’s management doesn’t realize that shoppers are going elsewhere, the current quarter could become the norm for the company. Kohl’s Corporation (NYSE:KSS) web site says, “it’s all on sale at Kohl’s,” if the company keeps this up, what will be on sale is their stock.

The article This Retailer Has 4 Major Problems originally appeared on Fool.com and is written by Chad Henage.

Chad Henage owns shares of Target. The Motley Fool has no position in any of the stocks mentioned. Chad is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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NYSE:M NYSE:KSS NYSE:TGT NASDAQ:ROST Macy's Inc (M)Kohl's Corp (KSS)Target Corp (TGT)Ross Stores Inc (ROST)Show more...Show less

Kohl’s Corporation (KSS): This Retailer Has Four Major Problems

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