Expect Great Things
The Coronavirus Pandemic hit Kohl (NYSE:KSS)’s hard, when they decided to close all 1,110 of its stores on March 19 and didn’t re-open them until May 8. Kohl’s stock is currently at $19. Kohl’s 52-week high was $59.28 on November 15, 2019, while its 10-year low was $10.89 on April 3, 2020. YTD, Kohl’s has taken a massive hit, down more than 60%. One nice thing about an investment in Kohl’s right now is that it’s a value buy. It’s earnings are also expected to grow tremendously, at a rate of of 101.2% per year. One thing that differentiates themselves from most other apparel retailers who are failing is that it’s debt is well covered by it’s operating cash flow, which gives investor’s confidence that Kohl’s won’t be shutting their doors anytime soon.
I am surprised to see a store like Kohl’s back on its feet and growing. I envisioned with so many jobs lost, that people wouldn’t be shopping for new clothes, new bedding, new kitchenware, etc. I envisioned people just using their disposable income on bare essentials such as food, medicine and gas. But I was wrong.
Outside of auto sales and gas, retail rose a robust 6.7% in June, including more than doubling at apparel stores. I failed to take into account certain things, such as the 2 trillion dollar stimulus package, the desire to look good in front of the camera, electronics people would need to work, use for school, and to entertain themselves. Finally, I didn’t take into account the importance of having a comfortable home that you’d be spending so much time in.
So how has Kohl’s climbed out of the rubble and forged ahead while so many other retailers remain on life support? For one thing, they, like Ulta Beauty, are free standing brick and mortar stores. This plays in their favor, unlike Macy’s (M) and Neiman Marcus, which are mostly connected to malls. And while many department stores and other apparel retailers have either declared bankruptcy or are in dire straits, Kohl’s will emerge with a larger customer base because of it.
What Kohl’s has done by teaming up with Amazon (AMZN) to accept their returns and bringing foot traffic into their stores is brilliant. 80% of Amazon customers live within 15 miles of a Kohl’s store. Kohl’s is also leasing space to Planet Fitness (where their push towards athletic apparel should pay off nicely) and Aldi, plus teaming up with in-store Weight Watcher consultants, further emphasizes a visit to its stores that they wouldn’t have seen otherwise.
Kohl’s has seen an uptick in online sales, with an increase in May of 90%. While the company already boasted a strong presence online before COVID-19, with 24% of its sales coming from there in 2019, this will most likely see an uptick once 2020 is in the books. Furthermore, Kohl’s has always been an off-price shopping store, with great deals offered via their charge cards and coupons. This will help them compete with the Big-box stores when it comes to the more price conscious consumers we see today. Finally, Kohl’s has included a commitment to the in-store shopping experience, and these are all reasons for seeing the company coming out of the virus stronger than it was before it.
The Best is yet to come
The Coronavirus took a massive hit on our economy, and the retail sector took a beating, including the 3 retailers I highlighted in this article. But Planet Fitness, Ulta Beauty, and Kohl’s were either more prepared for the virus when it struck, developed new strategies to help pull themselves up and become profitable again, or had the secret sauce that so many other retailers lacked. What you need to know is that once the virus is contained and our economy makes a strong recovery, these companies will be stronger than they were pre-coronavirus due to how they added on to their business model, and I would expect their stocks to see a steady rise upward. Planet Fitness, Ulta Beauty and Kohl’s can still be considered value stocks if you take into account where they’ve dropped to YTD. You may want to wait until you see what happens to the stock market as COVID-19 continues to surge forward again, because you very well might be able to pick these off at a much cheaper price if the stock market turns for the worse again. But when you see that opportunity come, I wouldn’t hesitate to buy into these 3 retailers. I can’t help but see a ton of long-term growth for all of them over time.
*Numerical Analysis sourced via SimplyWallSt and CNBC.
Article by Bob Schless
Blog writer for After Further Review…The Stock is Reversed
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