3 Turnaround Retail Stocks for the New Year: Kohl's, Dillards, and Ralph Lauren

NYSE: RL | Ralph Lauren Corporation  News, Ratings, and Charts

RL – Major fashion retailers struggled in 2020 amid strict lockdown and social distancing requirements. However, a few brands were able to capitalize on their technology to reach their customers. We expect stocks such as Ralph Lauren (RL), Kohl’s (KSS) and Dillard’s (DDS) to be safe bets in the New Year given their consumer-centric business models. Let’s look closer.

The fashion industry bore the brunt of the pandemic’s ill effects on business. The  global economic shutdown negatively affected retail sales significantly. With depressed consumer demand due to rising unemployment, most companies endured big  losses last year.

However, things have been looking up. Coronavirus vaccine deployment has raised investor optimism regarding the future of the global economy in general, including the retail fashion industry. Major brands have been able to survive the year-long turmoil by leveraging digital tools to reach out to customers in an impactful and interactive manner. Now, with the potential for fewer mobility restrictions and more relaxed social distancing norms, enthusiasm for the sector is gradually returning. .

Most major retailers are struggling on established social media platforms because of their traditional customer engagement models. However a few outliers, such as Ralph Lauren Corporation (RL), Kohl’s Corporation (KSS) and Dillard’s, Inc. (DDS) were able to revamp their strategies and found ways to maximize their returns on marketing spending through attention-grabbing content. That is why we expect these three stocks to generate decent returns this year.

Ralph Lauren Corporation (RL)

RL designs, markets, and distributes premium lifestyle products in five categories: apparel, footwear & accessories, home, fragrances, and hospitality. The Company operates internationally through three segments: Wholesale, Retail, and Licensing. RL sells its products to department stores, specialty stores, and golf and pro shops, as well as directly to consumers through its retail stores and its digital commerce sites.

RL partnered with key digital pure play retailers including Zalando, Asos, and Urban Outfitters in the second quarter to deliver exclusive capsule collections, driving strong engagement with Gen Z consumers. Its performance improved sequentially across all regions in the quarter led by its digital channels, despite COVID-19 driven business disruptions and depressed consumer demand.

RL’s revenues increased 144.8% sequentially to $1.19 billion in the second quarter ended September 30, 2020. Its non-GAAP EPS has increased 179.1% sequentially to $1.44 over the same period. The company reported gross profit margin of 66.5%, up 500 basis points compared to the year-ago value.

Analysts expect RL’s revenue to rise 3.2% year-over-year to $1.31 billion in the next quarter ending March 31, 2021. The consensus EPS estimate of $0.25 for the ongoing quarter represents a 136.8% improvement year-over-year. RL has gained 43.2 % over the past six months.

How does RL stack up for the POWR Ratings?

B for Trade Grade

B for Industry Rank

B for Overall POWR Rating.

The stock is currently ranked #20 of 67 stocks in the Fashion & Luxury Industry.

Kohl’s Corporation (KSS)

KSS is a retail company in the United States that sells moderately priced private label and national brand apparel, footwear, accessories, beauty, and home products.

In  November, KSS was included in the Dow Jones Sustainability Index (DJSI) North America by S&P Global for the third consecutive year. The designation recognizes the company’s continued commitment to sustainability efforts and environmental, social and governance (ESG) commitments.

On December 1, KSS entered a long-term strategic partnership with Sephora to synergize its prestige service, product selection, and exceptional beauty experience with its own expansive customer reach and supply chain convenience. This arrangement should  help KSS transform its prestige beauty experience and attract a large volume of potential customers.

KSS’ revenues increased 16.8% sequentially to $3.98 billion in the fiscal third quarter ended October 31, 2020. Its non-GAAP EPS has improved 104% sequentially to $0.01 over the same period.

Analysts expect KSS’ revenues to rise 58.7% year-over-year to $3.45 billion in the fiscal first quarter ending April 30, 2021. The consensus EPS estimate for the next quarter (ending April 30, 2021) represents  a 106.3% improvement year-over-year. The company has an impressive earnings surprise history also; it beat the Street EPS estimates in three out of trailing four quarters. The stock has gained 88.4 % over the past six months.

KSS has an overall rating of “Buy” with a “B” for Trade Grade and Industry Rank. It is currently ranked #22 of 67 stocks in the same industry.

Dillard’s, Inc. (DDS)

DDS operates as a fashion apparel, cosmetics, and home furnishing retailer in the U.S. The Company’s operational segments include the Retail operations segment and the Construction segment, which includes general contracting construction activities.

DDS reported a gross profit margin of 35.7% in the fiscal third quarter ended October 31, 2020, up 249 basis points from the year-ago value. Its EPS has increased 550% year-over-year to $1.43 over the same period.

Analysts expect DDS’ revenues to rise 73.8% year-over-year to $1.43 billion in the next quarter ending April 31, 2021. The consensus EPS estimate of $2.55 for the current quarter (ending January 31, 2021) represents  a 6.3% improvement year-over-year. DDS has gained 137.6% over the past six months.

DDS is rated “Buy” in our POWR Ratings system, with an “A” in Trade Grade and a “B” in Peer Grade and Industry Rank. It is currently ranked #28 of 67 stocks in the same industry.

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RL shares were unchanged in after-hours trading Wednesday. Year-to-date, RL has gained 5.49%, versus a -0.09% rise in the benchmark S&P 500 index during the same period.


About the Author: Rishab Dugar


Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...


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