Kohl’s Corporation (KSS) is one of the top omni channel retailers. But its share price has dipped 11.1% since the company reported its fiscal first quarter (ended May 1, 2021) financial results on May 20. While the company’s top and bottom lines both grew in the quarter,  its share price decline is perhaps a consequence of investors’ speculation that its revenues may fall when government-stimulus-fueled demand trails off.  However, the stock has soared 145.9% over the past nine months to close yesterday’s trading session at $53.41.

KSS has grown its offline and online presence over the past few months, leveraging its industry-leading loyalty and charge card programs, convenient and accessible nationwide footprint, and an impressive digital presence.

Volta Industries, Inc. and KSS announced on April 29 that 100 Volta electric vehicle charging stations will be installed this year across 50 of KSS’ stores. The company’s partnership with Sephora and its forthcoming launch of several new brands this fall are also expected to boost its sales.

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Here are the factors that we think could influence KSS’ performance in the coming months:

Launch of New Collections Along with Strategic Partnerships

KSS launched its new private-label athleisure line—FLX—in March. The launch was a significant step in the company’s plan to aggressively expand its market reach in the growing active and casual categories.

The company’s partnership with Amazon.com, Inc. (AMZN) has been profitable and has  helped bring  more than  2 million new customers into its stores in 2020. Sephora announced on April 27 that as part of its new omni partnership, more than 125 prestige beauty brands will be coming to Sephora at Kohl’s this August. Also in April, KSS  announced a new partnership to bring TOMMY HILFIGER men’s sportswear to more than 600 stores across the country, and an expanded assortment on Kohls.com this fall. These collaborations are expected to help expand the company’s market reach significantly.

Impressive Financials

KSS’ total revenue for its  fiscal first quarter ended May 1, 2021, was  $3.89 billion, which represents a 60.1% year-over-year increase. Its operating income for the quarter was $273 million compared to a $718 million loss in the prior-year period. The company’s non-GAAP net income came in at $165 million compared to a  $495 million  loss in the year-ago period. Also, KSS’ non-GAAP EPS was $1.05 versus a $3.22 loss per share in the prior-year quarter.

Reasonable Valuation

In terms of forward non-GAAP P/E ratio, KSS’ 13.09x is 23% lower than the 17.01x industry average. Its 0.74x forward EV/Sales is 54.6% lower than the 1.63x industry average. And its  0.48x forward P/S  is also lower than the 1.36x industry average.

Consensus Rating and Price Target Indicate Solid Upside

KSS has a 1.62 average broker rating. Of 17 Wall Street analysts that have rated the stock, 6 rated it Strong Buy and 2 rated it Buy. Analysts expect the stock to hit $64.86 in the near term, which indicates a potential 21.4% upside.

POWR Ratings Reflect Rosy Prospects

KSS has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among  these categories, KSS has an A grade for Value, which is in sync with its lower-than-industry valuation ratios.

It has an A grade for Growth also.  This is justified given that analysts expect KSS’ annual revenue to increase 20.2% year-over-year to $18.07 billion in  2022. Its EPS is expected to grow 536% for the current quarter ending July 31, 2021, and 277.1% in 2022.

KSS has a B grade for Quality, which is consistent with its 39.02% trailing-12-month gross profit margin, which is higher than the 34.55% industry average.

Of 65 stocks in the A-rated Fashion & Luxury industry, KSS is ranked #10. Click here to see the additional POWR Ratings grades for KSS (Momentum, Sentiment and Stability).

If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of Strong Buy or Buy, you can access them here.

Bottom Line

KSS has grown significantly over the past few months thanks to consistent improvement in its digital platforms and numerous strategic partnerships. The company is scheduled to pay a $0.25 quarterly dividend per share on June 23, after suspending dividend payments amid the COVID-19 pandemic to preserve cash. Now trading at a discount to its peers, we think it  wise to scoop up KSS shares now.

Click here to checkout our Retail Industry Report for 2021

KSS shares were trading at $52.50 per share on Friday morning, down $0.91 (-1.70%). Year-to-date, KSS has gained 29.54%, versus a 13.24% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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