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Kohl's Up More Than 35% in Six Months: Will Momentum Stay?

Kohl's Corporation KSS is well placed courtesy of its effective partnerships and solid digital operations. Also, the company boosts a strong brand portfolio and undertakes frequent innovations. Notably, Kohl’s shares have gained 35.4% in the past six months compared with the industry’s growth of 14.3%.

Let’s delve deeper.

Factors Working in Favor of Kohl's

Kohl’s is strengthening its ties with retail giant Amazon AMZN to drive traffic. Incidentally, the company is benefiting from the rollout of its Amazon returns program nationwide. According to this program, Kohl’s stores accept free, unpackaged and easy returns for customers of Amazon. The company is witnessing improved store traffic from the Amazon returns program since its stores reopened following coronavirus-led closures. One of the prime objectives of this program is to convert more customers as loyal Kohl’s shoppers.

In an earlier development, Kohl’s decided to sell Amazon devices, accessories and smart home devices in selected stores in Los Angeles and Chicago. Kohl’s believes that this store-within-store concept will boost traffic, owing to the availability of Amazon’s varied electronics options. In the long run, the company is expected to receive significant boost to its business through this partnership. Further, Kohl’s partnership with Fanatics, Property Brothers and Home Decor is expected to strengthen performance.


 

Also, Kohl’s is benefiting from its growing e-commerce business for a while. Markedly, digital sales witnessed a 58% jump during second-quarter fiscal 2020, led by customers’ increased shift to online shopping amid the coronavirus outbreak. Given the need of the hour, management ramped up its digital marketing and enhanced its website to cater to customers’ needs. Certainly, the company’s investments toward boosting online capabilities and improving consumer engagement are yielding. Management expects to leverage its strong online presence during the upcoming holiday season.

Moreover, the company’s solid endeavors to boost mobile traffic have augmented the adoption of the Kohl app, making it a vital constituent of online sales. To improve online offerings, Kohl’s is expanding its e-commerce fulfillment centers and strengthening in-store pickups. In fact, the company has been witnessing increased adoption of Buy-Online-Ship-to-Store (BOSS) and/or BOPIS.

Kohl’s, which offers moderately priced exclusive and national brands, has established a strong portfolio that includes Dockers, Levi’s, Columbia Sportswear COLM, Reebok, Champion and Kitchen Aid. Also, the company added Land’s End products to its national brand portfolio in March 2020. In the active category, brands like Adidas, Under Armour and Nike NKE have particularly been doing well. Kohl’s regularly introduces new brands in order to keep the inventory assortment fresh and drive customer traffic to its stores and website.

Hurdles on the Way

The coronavirus outbreak, which led to the closure of stores, impacted Kohl's second-quarter fiscal 2020 performance. Net sales declined 22.9% year over year due to nearly 25% less operating days compared with the prior-year quarter’s figure and reduced working hours amid the pandemic.

Apart from this, Kohl’s is witnessing rising selling, general and administrative (SG&A) expenses for a while now. In the fiscal second quarter, as a percentage of total revenues, SG&A expenses increased to 30.8% from 28.6% in the prior-year quarter. Moreover, pandemic-induced hurdles affected its gross margin during the quarter.

Nonetheless, the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company remain in investors’ good books.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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