Monday, October 28, 2013

Kohl's (KSS) Article from Barron's

A positive stance on Kohl's.  The KSS position, started last fall, is up over 28% in the Chump IRA. Here a couple of FASTGraphs reflecting a continued under-valuation.  I'm planning to continue holding the position.

Interesting, the article says the stock hasn't done much the past three years, with anemic growth between 3% and 4%.  That's true, if you bought three or more years ago, the stock was not undervalued!  But I bought in the fall of 2012, when it was clearly trading at a discount, and still is today.  This shows the importance of entry price.  

Here is the article from Barrons:

Coming Back to Kohl's

The retailer's shares could rise 20% as management improves inventory levels and merchandising. The quest for more national brands.

As retail stocks go, Kohl's has been about as interesting in the past three years as a pair of khaki pants. On second thought, the khakis win this contest: Shares of the midpriced apparel, accessories, and housewares chain have risen all of 3.6%, to $54.74, in this span, while the Standard & Poor's 500 has surged 48%.
Kohl's, which operates 1,158 stores in 49 states, has been hampered by lackluster merchandising, inventory imbalances, and constricted profit margins. Bearish investors cite the company's inability to recruit and carry the most desirable brands.
Eric Risberg/AP Photo
Kohl's operates 1,158 stores across the country, including this unit in San Rafael, Calif.
Yet, skeptics could be surprised in the next year as Kohl's finally begins to live up to its retail motto, "Expect Great Things." A constellation of merely good things, including improvements in the merchandise assortment, private-label programs, and the online business, as well as cost-cutting, could result in modest revenue growth and higher pretax margins, which in turn could lift the shares (ticker: KSS) by more than 20%, into the mid- to high-$60s.
The bullish case for Kohl's, based in Menomonee Falls, Wis., begins with the retailer's shareholder-friendly capital-allocation policies. From 2010 through 2012 the company bought back $4.6 billion worth of shares, shrinking its market capitalization by 30%, and it plans to continue shopping. It also initiated a dividend in 2011, which it has raised steadily to a current $1.40 a share. The stock yields 2.6%.
THESE MOVES PROVIDE "a fair amount of valuation support," John Linehan, head of U.S. equity at T. Rowe Price, told Barron's in a recent interview ("Why a Pro Likes Apache, Southwest, and Kohl's," Sept. 16). The Baltimore-based money manager owned nearly 12% of Kohl's as of June 30.
Making nice to shareholders gives management some breathing room. While Kohl's declined to make its top executives available for interviews, the company acknowledged in recent conference calls with analysts that it knows there is work to do.
Kohl's earned $986 million, or $4.17 a share, in the fiscal year ended Feb. 2, down from $4.30 in fiscal 2012. Revenue rose 2.7%, to $19.3 billion, as sales at stores open at least a year inched up just 0.3%. But sales growth came at the expense of profitability: Gross profit margins contracted to 33.3% from 36.2% a year earlier, pressured by markdowns.
Kohl's is expected to earn $4.24 a share in the current fiscal year, and $4.65 in fiscal 2015, reflecting operating improvements. Investors have their doubts, however, as the stock fetches just 11.6 times the fiscal 2015 earnings estimate, a 30% discount to the department-store industry. In the early 2000s Kohl's was considered a stock-market darling, with a P/E above 30.

No comments:

Post a Comment