Kohl's Corporation KSS is riding on strong e-commerce business and efforts to solidify the brand portfolio. Further, the company is expected to keep gaining from its enhanced ties with Amazon AMZN. Also, its efficient inventory management initiative bodes well.
These factors helped this Zacks Rank #3 (Hold) stock showcase a decent run in the past six months despite cost-related headwinds and elevated tariff threats. Notably, Kohl's shares have gained 10% in the past six months against the industry’s decline of 6.1%.
Let’s take a closer look at the factors working in favor of this department store retailer.
Factors Shaping Kohl's Growth Story
Kohl’s has been benefiting from its growing e-commerce business for a while now. Its online business has been gaining from strong assortments and favorable impacts from the company’s customer-centric investments. To this end, Kohl’s has been expanding its e-commerce fulfillment centers. In fact, the company recently made investments in its sixth fulfillment center. Notably, digital sales witnessed a mid-teen increase during third-quarter fiscal 2019.
Additionally, Kohl’s has been focusing on strengthening in-store pickups. The company witnessed increased adoption of Buy-Online-Ship-to-Store (or BOSS) in the third quarter. Further, we note that its investments toward boosting the capabilities of online applications have improved consumer engagement. In fact, the Kohl’s app grew considerably in the third quarter, with traffic nearly doubling and sales almost tripling on the back of increased customer usage.
Apart from this, Kohl’s inventory management efforts bode well. The company’s aged inventories have been declining consistently and providing more space for fresh assortments. Notably, inventory dollars increased 1% in the third quarter compared with the last reported quarters’ 2% rise.
Also, Kohl’s has been strengthening ties with retail giant Amazon to drive traffic. Incidentally, the company completed the rollout of the Amazon returns program nationwide. According to this program, Kohl’s stores are accepting free, unpackaged and easy returns for customers of Amazon. The company expects to witness improved store traffic from the Amazon returns program.
Hurdles Likely to be Countered
Kohl's witnessed higher selling, general and administrative (SG&A) expenses in the third quarter due to increased marketing and IT expenses. Moreover, the company witnessed higher store-related expenses due to the significant number of brand launches, wage rate pressures, early holiday hiring and the Amazon Returns program. Consequently, high costs exerted pressure on the company’s operating income, which declined 20.9% from the prior-year quarter’s figure. Also, the potential impacts from tariffs on merchandise sourced from China are concerning.
Nevertheless, the company’s aforementioned initiatives to drive traffic and sales are encouraging. We expect these upsides to help Kohl’s continue being in investors’ good books.
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