Down 30% Kohl’s Stock Looks Attractive

Kohl’s stock (NYSE: KSS), owner of department stores with apparel, footwear, accessories, and housewares, became vulnerable due to its high operating costs and nonessential product assortment during the pandemic. Consequently, the company’s stock has lost 34% of its value so far this year, and currently stands at around $32. And, we believe it is a good time to enter Kohl’s stock. This is taking into account Kohl’s operating performance compared to its rivals, expanding portfolio of national brands, recent vaccine trial news, and considering the stock’s almost 94% rebound following the 2008 financial crisis. Our conclusion is based on our detailed comparison of Kohl’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

While Kohl’s August performance was hurt by weaker back-to-school sales due to Covid-19, September and October saw improvements, driven by better sales in the home and toy segments. The company is also leaning toward active and casual apparel sales going forward, given the demand of the situation. The retailer ended Q3 with more than $1.9 billion in cash and paid off the outstanding balance on its revolver (which previously had $1 billion outstanding). The company also plans to reinstate a dividend during the first half of 2021. As it turns out, it will take time for the industry shakeup to play out, but Kohl’s looks prepared to weather the Covid storm.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

• 12/12/2019:             Coronavirus cases first reported in China
• 1/31/2020:               WHO declares a global health emergency.
• 2/19/2020:              Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
• 3/23/2020:              S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid a Saudi-led price war
• Since 3/24/2020:  S&P 500 recovers 63% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

Kohl’s Performance During 2020 Coronavirus

KSS stock declined from levels of around $51 in mid-February (the pre-crisis peak) to roughly around $13 as of March 23 (as the markets bottomed out) – implying that the stock lost as much as 70% of its value from its approximate pre-crisis peak. It then rallied to levels of over $33, rising by 156% since March 23. However, it is still down 34% from levels of around $51 seen in early January.

S&P 500 Index Performance During 2020 Coronavirus/Oil Price War Crisis

The S&P 500 index declined from levels of around 3,386 in mid-Feb (pre-crisis peak) to levels of around 2,237 as of Mar 23 (as the markets bottomed out), implying the index lost 34% of its value from its approximate pre-crisis peak. It then rallied to levels of about 3,636 currently, rising by 63% since Mar 23. It is also up 13% from levels of 3,231 seen in early January.

Kohl’s Stock Performance Over 2007-08 Financial Crisis

KSS stock declined from levels of around $58 in October 2007 (the pre-crisis peak) to roughly $35 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 39% of its value from its approximate pre-crisis peak. However, KSS stock recovered post the 2008 crisis, to levels of about $54 in early 2010, rising by 53% between March 2009 and January 2010.

S&P 500 Index fell 51% from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124 – rising by about 48% between March 2009 and January 2010.

Fundamentals

How Do KSS Fundamentals Look In Recent Years?

Kohl’s revenues grew 2% from $19.7 Bil in 2016 to $20.0 Bil in 2019. In addition, earnings growth, on a per-share basis, was higher by 40% between 2016 and 2019.

Survival Check

Does Kohl’s Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis? 

Kohl’s ended the recent Q3 with more than $1.9 billion in cash and paid off the outstanding balance on its revolver (which previously had $1 billion outstanding) and has a debt of close to $2.5 billion. It also generated a positive operating cash flow of $910 million year-to-date.

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