Kohl's Rallies On Solid Holiday Sales: More Upside In Store?

In a landscape where many retailers are still struggling with consumers' changing shopping patterns and soft traffic, Kohl's Corporation KSS surprised investors with impressive holiday sales data. The solid results, which encouraged management to raise its earnings outlook for fiscal 2017, were enough to make  investors go bullish on the stock.

Encouragingly, the news led this Zacks Rank #2 (Buy) stock to scale a 52-week high of $59.09 yesterday, while it eventually closed at $56.90, reflecting a gain of 4.7% during the trading session. Clearly, Kohl's sales driving strategies are paying off, which have also helped the stock rally 46.5% over a year, as against the industry's 0.4% dip. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

So, let's delve deeper into Kohl's holiday sales numbers and see if its growth efforts can propel it further.
 

How Kohl's Fared in Holiday 2017?

Kohl's revealed that both, comparable store sales (comps) and total sales of the company advanced 6.9% year over year, for the combined November and December 2017 period. Notably, this marks a significant improvement from a 2.1% and 2.7% respective drop in comps and total sales witnessed in the 2016 holiday season.

Moreover, Kohl's performed better than retailers like Macy's M and J.C. Penney, as the former reported a 1.1% rise in comps (owned plus licensed basis) and the latter recorded a 3.4% comps growth for the 2017 holiday period. Moreover, we note that Kohl's performance remained steadily sturdy throughout both November and December, backed by positive comps across all businesses and regions. This, in turn was fueled by Kohl's robust strategies, which helped it attract strong traffic and record solid digital sales during the season.

Among its various efforts, alliance with online giant Amazon AMZN seems to be yielding considerable results for Kohl's. Incidentally, the company has started accepting returns from Amazon's customers on select products. This move followed Kohl's decision to sell Amazon devices, accessories and smart home devices across 10 of its selected stores in Los Angeles and Chicago. Additionally, the company is gaining from enhanced focus on prominent brands such as Nike NKE and Adidas. Kohl's has been regularly introducing new brands to keep inventory assortment fresh and drive customer traffic to stores and website.

Further Upside in Store?

We believe that sustained focus on technology improvements and omni-channel expansion is likely to fuel further growth at Kohl's. In fact, the department store retailer's better-than-expected holiday performance and optimistic anticipations for January stimulated management to raise its fiscal 2017 earnings outlook from $3.72-$3.92 to $4.10 to $4.20 per share.

Excluding certain tax-related settlements, earnings per share are envisioned in a band of $3.98 to $4.08, in comparison with $3.60 to $3.80 forecasted earlier. Also, the company continues to expect gross margin for fiscal 2017 to be greater than the year-ago period, whereas SG&A expenses (including 53rd week) are estimated to escalate at the higher end of the company's previously forecasted range of 0.5-2.0%.

Nonetheless, management stated that the updated guidance doesn't include any impact from the latest tax reforms, which is likely to have a favorable effect on the company's effective tax rate. Also, amendments in the federal tax legislation are expected to generate a non-cash tax benefit associated with 2017 deferred tax balances.

We expect all aforementioned factors to keep Kohl's firmly positioned on growth trajectory and help it sustain its spectacular momentum.

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