Kohl's Earnings: MKM Analysts See Upside Potential

In a report published Tuesday, MKM Partners maintained a Buy rating on

, with a price target of $87, ahead of the company's 1Q results. In the report MKM Partners noted, "While there were a few challenges in the quarter, including adverse weather in February and the ports disruptions, we expect a solid print and see slight upside potential to Street expectations. We believe key initiatives, including a renewed focus on national brands (50% of sales LY vs. 48% in FY13), as well as the new loyalty and beauty programs, are gaining traction against a generally constructive macro backdrop." Kohl's launched Yes2You nationwide in October 2014 and had added 25 million members by the end of January, surpassing its internal goal by 20 percent. The sign-ups continue to be robust and the program could be a "meaningful traffic driver," the analysts said. The analysts consider Bliss to be a significant win for Kohl's "beauty push." Around 43 percent of the company's stores had newly renovated beauty departments at the end of 4Q14. The penetration is expected to increase to about 80 percent by the fall. "We see this initiative and loyalty driving at least a couple points of comp growth by 3Q15, which makes our 2% estimate for 2H15 look conservative," the analysts added. The same-store sales and EPS estimates for 1Q15 has been raised from 2.0 percent to 3.0 percent and from $0.53 to $0.56, respectively. The EPS estimates for 2015 and 2016 have been raised from $4.55 to $4.58 and from $5.10 to $5.13, respectively. Kohl's shares have risen 22 percent year-to-date, as compared to the 3 percent rise in the XRT and 2 percent gain in the SPX. The stock is now at a premium to

, which the analysts believe is "warranted" given their view that "Kohl's is positioned to outperform Macy's for the first time in a number of years."