Here's Why You Should Add Kohl's (KSS) To Your Portfolio Now

Kohl’s Corporation (NYSE:KSS) has been gaining from its strong portfolio of brands, growth in e-commerce business and continued innovation. Strong inventory and expense management have also been positively impacting the company’s bottom line.

In addition, we also believe that the extended tie-up between Kohl’s and Amazon.com (NASDAQ:AMZN) have enhanced investor’s confidence in the stock. Shares of Kohl’s have surged 8.3% in the past six months, outperforming the industry’s decline of 15.8%.

Let’s delve into the factors that have been impacting Kohl’s performance lately.

Surging e-commerce

Kohl’s e-commerce sales have almost doubled since 2011 at a compound annual growth rate of almost 40% over the last five years. In the recently reported second quarter of 2017, digital conversion improved at a double-digit rate on the back of better customer experience on smartphone and smartphone app. In fact, technology improvements in both application and the device along with omni-channel efforts are expected to bear positive impact on customer experience.

Similarly, retailers like Target Corporation (NYSE:TGT) are also focused on boosting omni-channel retailing and e-commerce.

Initiatives to Enhance Margins

Kohl’s has undertaken several initiatives to reduce inventory, in order to boost profits. During the second quarter of fiscal 2017, the company made additional progress on its initiatives. As a result, inventory per store decreased 2%, while units per store were 3% lower, which was consistent with expectations for a low to mid-single-digit decrease for the year. The company continues to expect inventory to be down low to mid-single digits for fiscal 2017.

Strong Portfolio of Brands

Kohl’s prides on having a diverse product portfolio which includes apparel, shoes, accessories, beauty and home products. The company has established a strong brand portfolio with national brands such as Dockers, Levi’s, Columbia Sportswear, Reebok, Champion, Oshkosh, Pfatzgraff and KitchenAid.

The company has also been keen on innovation and regularly introduces new brands in order to keep the inventory assortment fresh and drive customer traffic to its stores and website. Popular launches include Fit Bed under its active and wellness business and Jumping Beans collection, amongst many more.

Efforts to Improve Store Traffic

Kohl’s has been struggling with lower comps for quite some time now. The company’s comps started declining from the first quarter of fiscal 2016 and plummeted consecutively for the next six quarters. This signifies that the company’s strategic initiative, Greatness Agenda, is failing to deliver results. The initiative, which commenced in first-quarter 2014, was designed to increase transactions per store and sales.

In an effort to drive store sales, Kohl’s has started offering more outside famous brands and cutting down on the number of in-house clothing brands it sells. The addition of Under Armour workout tights, sneakers and other accessories in March was a great success and was well received among customers. The company’s focus on large private-label brands such as, SONOMA, Croft & Barrow and Apartment 9 has also been aiding store traffic expansion.

Tie-Up with Amazon

Kohl’s recent initiatives to strengthen its tie-up with Amazon are also expected to enhance store traffic. The company recently announced its initiative to accept returns for Amazon customers on selected products in 82 of its U.S. store locations from October 2017. Additionally, the retailer will provide free service of packing and shipping the merchandises to Amazon’s fulfillment centers. Through such a partnership, Kohl’s is expected to expand its omni-channel capabilities and make use of Amazons’ wide consumer base.

In recent times, Kohl’s had also announced to sell Amazon’s devices, accessories and smart home products in 10 selected stores in Los Angeles and Chicago. Kohl’s believes that this store-within-store concept will boost traffic. Like Kohl’s, retailers such as Best Buy Co. Inc (NYSE:BBY) have also teamed up with the online giant ahead of the holiday season.

Bottom Line

Kohl’s dedicated efforts to improve comps are quite noteworthy and is expected to positively impact sales in the forthcoming quarters. Moreover, this Zacks Rank #2 (Buy) stock carries a VGM Score of A and has a long-term growth rate of 5.7%, indicating its inherent strength. Further estimates for the forthcoming third-quarter results and for fiscal 2017 have also remained stable at 71 cents and $3.72 respectively, over the past 30 days.

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

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