Kohl’s Corporation (KSS) and Nordstrom, Inc. (JWN) are two prominent players in the department stores industry. KSS offers private and national brand apparel, footwear, accessories, beauty, and home products through its stores and website. As of January 30, 2021, it operated 1,162 brick-and-mortar stores, a website, and 12 FILA outlets. In comparison, JWN offers apparel, shoes, beauty, accessories, and home goods. It offers a range of brand name and private label merchandise through multiple retail channels, discount stores, boutiques, catalogs, and the internet. As of March 2, 2021, it operated 358 brick-and-mortar stores.
In 2021, solid progress on the vaccination front led to rising foot traffic in department stores, helping them generate substantial revenues. Moreover, department stores witnessed rising sales on their e-commerce platforms. Despite the resurgence of COVID-19 cases recently, supply chain constraints, and high inflationary pressures, rising consumer spending this holiday season has enabled retail sales to surge 8.5% from the prior-year period in November 2021, the highest in 17 years. The global department store sales are expected to grow at 4% CAGR and reach over $12 billion by 2030. So, both KSS and JWN are expected to benefit.
While JWN lost 27.5% over the past year, KSS has surged 21.4%. But which of these stocks is a better pick now? Let us find out.
On April 27, 2021, Sephora, a French multinational retailer of personal care and beauty products, partnered with KSS to bring more than 125 prestige beauty brands to KSS stores this August as part of their new Omni partnership. This strategic partnership expands the reach and accessibility of prestige beauty brands through a unique, immersive beauty experience. KSS expects to witness high sales ahead.
On November 18, 2021, JWN and Fanatics, a leading provider of licensed sports merchandise and global digital sports platform, announced a new long-term partnership through which JWN customers can shop high-quality, licensed sports fan products available through Fanatics’ industry-leading assortment. JWN will power the front-end digital customer experience, while orders will be fulfilled and shipped by Fanatics. JWN is looking forward to benefiting from this innovative partnership model and new product category.
Recent Financial Results
KSS’ total revenue for its fiscal third quarter, ended October 30, 2021, increased 15.6% year-over-year to $4.60 billion. The company’s operating income came in at $387 million, indicating a 1659.1% rise from the prior-year period. KSS’ adjusted net income came in at $243 million, up 12050% from the year-ago period. Its adjusted EPS increased 16400% year-over-year to $1.65. The company had $1.87 billion in cash and cash equivalents as of October 30, 2021.
For its fiscal third quarter, ended October 30, 2021, JWN’s total revenues increased 17.7% year-over-year to $3.64 billion. The company’s pre-tax income came in at $91 million, representing a 56.9% rise from the year-ago period. JWN’s net earnings came in at $64 million for the quarter, representing a 20.8% rise from the prior-year period. Its EPS came in at $0.39, up 14.7% from the year-ago period. The company had $267 million in cash and equivalents as of October 30, 2021.
Past and Expected Financial Performance
KSS’ EBIT and EPS have increased at CAGRs of 7.3% and 2.2%, respectively, over the past three years. The company’s levered free cash flow has grown at a 5.1% CAGR over the past three years.
Analysts expect KSS’ EPS to increase 409.3% year-over-year in the current fiscal year but decline 7.9% next year. Its revenue is expected to grow 25.4% year-over-year in the current fiscal year and 2.1% next year.
In comparison, JWN’s EBIT and EPS have fallen at CAGRs of 27% and 71.7%, respectively, over the past three years. The company’s levered free cash flow has fallen at 24.5% CAGR over the past three years.
JWN’s EPS is expected to grow 128.2% year-over-year in the current fiscal year and 66.1% next year. The company’s revenue is expected to increase 36.7% year-over-year in the current fiscal year and 3.7% next year.
In terms of non-GAAP forward P/E, JWN is currently trading at 17.31x, which is 156.1% higher than KSS’ 6.76x. And in terms of non-GAAP forward PEG, KSS’ 1.00x compares with JWN’s 2.89x.
KSS’ trailing-12-month revenue is almost 1.4 times JWN’s. However, KSS is more profitable, with a 41.8% gross profit margin versus JWN’s 35.4%.
Furthermore, KSS’ ROE, ROA, and ROTC of 8.7%, 20.1%, and 7.4% compare favorably with JWN’s 2.2%, 3.6%, and 2.3%, respectively.
While KSS has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, JWN has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both KSS and JWN have a C grade for Momentum, consistent with their mixed price performance over the past year.
KSS has an A grade for Value, which is in sync with its lower-than-industry valuation ratios. It has a 4.6 forward EV/EBITDA, 56.5% lower than the 10.58x industry average. JWN’s B grade for Value reflects its relatively lower valuation ratios. JWN’s 7.45x forward EV/EBITDA is 29.6% lower than the industry average of 10.58x.
Of 63 stocks in the A-rated Fashion & Luxury industry, JWN is ranked #51, while KSS is ranked #24.
Beyond what we have stated above, our POWR Ratings system has also rated KSS and JWN for Growth, Quality, Stability, and Sentiment. Get all KSS ratings here. Also, click here to see the additional POWR Ratings for JWN.
Rising consumer spending this holiday season should enable department stores to deliver solid returns and overcome rising input costs. Both KSS and JWN are expected to benefit from in-store and online sales. However, we think higher profit margin and relatively lower valuation make KSS a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Fashion & Luxury industry.
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KSS shares were trading at $50.28 per share on Monday afternoon, up $0.89 (+1.80%). Year-to-date, KSS has gained 25.81%, versus a 28.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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