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Kohl's (KSS) Gains on Strategic Growth Efforts, Online Sales

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Zacks Equity Research
·4 min read
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Kohl's Corporation KSS is in solid shape, courtesy of strong e-commerce business. Also, the company’sstrategic efforts to drive growth and lucrative partnerships are worth mentioning.

Let’s dive deeper.

Digital Business: A Key Driver

Kohl’s is benefiting from its growing digital business for a while now. Notably, digital revenues contributed 32% to total sales, while increasing 25% year over year during third-quarter fiscal 2020. The upside can be attributed to customers’ increased shift to online shopping amid the coronavirus outbreak. Given the need of the hour, management is speeding up its digital marketing and enhancing website to cater to customers’ needs. Certainly, the company’s investments toward boosting online capabilities and improving consumer engagement are yielding. Management expects to keep leveraging its strong online presence.

We note that 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 along with strengthening in-store pickups.

 

Other Growth Efforts

In October, Kohl’s introduced a new strategic framework that focuses on four key areas — driving top-line growth, expanding operating margin, implementing disciplined capital management and undertaking an agile accountable and inclusive culture. Under its driving top-line growth initiative, the company intends to become the most trusted retailer of choice for active and casual lifestyle. Also, Kohl’s is undertaking strategic efforts to create loyalty and value along with providing a differentiated omni-channel experience for customers.

Notably, Kohl’s intends to reach its operating margin goal of 7-8% with the help of modest level of growth, its ongoing transformational margin initiatives and focus on operational excellence. Further, management is committed to disciplined capital management. Also, the company’s innovative and adaptive learning approach and focus on diversity and inclusion bodes well.

Kohl’s is strengthening its ties with retail giant Amazon AMZN to drive traffic. Incidentally, the company has been benefiting from the rollout of its Amazon returns program nationwide. 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 bodes well.

Is All Rosy For Kohl’s?

Kohl’s has been seeing rising selling, general and administrative expenses, as a percentage of total revenues, for a while now. In the third quarter of fiscal 2020, the metric increased to 32.7% from 30.7% reported in the prior-year quarter. Moreover, the company’s gross margin contracted 48 basis points in the fiscal third quarter thanks to escalated shipping costs, owing to higher digital sales penetration. Going into the fiscal fourth quarter, management expects gross margin to stay under pressure owing to increased shipping costs, as it anticipates digital penetration to remain high along with incremental Sprite surcharges.

Nevertheless, we believe that the aforementioned upsides are likely to keep driving this Zacks Rank #3 (Hold) company’s performance. Notably, shares of Kohl’s have surged 56.8% in the past three months compared with the industry’s growth of 57.3%.

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