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Analyst Sees Expansion, Wang Boosting Kohl’s Shares

Shares of Kohl's Corp. jumped 4.4 percent in trading Wednesday after a Robert W. Baird & Co. analyst upped the department store's stock to "outperform" from "neutral" in a research note.

Shares of Kohl’s Corp. jumped 4.4 percent in trading Wednesday after a Robert W. Baird & Co. analyst upped the department store’s stock to “outperform” from “neutral” in a research note.

This story first appeared in the June 28, 2007 issue of WWD.  Subscribe Today.

The analyst, David Cumberland, said Kohl’s upcoming Vera Wang merchandise launch and store expansion plans were paving the way for increased growth visibility and attractive share valuation.

The stock increased steadily throughout the day. After opening at $69.25 it closed at $71.20. Slightly more than six million shares changed hands, compared with a three-month average volume of 3.3 million.

“We’re as eager as everyone to see the Vera Wang product and get more feedback,” said Baird analyst Cumberland, in a telephone interview. Cumberland noted that industry observers and customers have given the line strong reviews so far.

Cumberland expects Kohl’s new line, called Simply Vera Vera Wang and slated for a September launch, to attract new customers looking for contemporary apparel.

“I think the concept for Kohl’s and where it has stood out with customers is the strong perception of value,” the analyst said. “They’ve got the broad middle-market customer they’ve attracted over time.”

Cumberland also pointed to the company’s continued expansion plan. The chain currently runs 834 stores in 46 states, and plans to open between 110 and 115 stores in 2007, as well as 100 stores a year for 2008, 2009 and 2010.

“In the department store area, no one is even close to Kohl’s growth rate,” said Cumberland, who noted that Kohl’s is one of the nation’s fastest growing among all retailers.

The analyst estimates that the company will reach the high end of its 2007 forecast range of $3.75 to $3.87 in diluted earnings per share, which he said implies a growth rate of between 6 and 10 percent for the second half of 2007. Consensus estimates call for 2007 earnings of $3.90 a share.

“Kohl’s should continue to gain substantial market share in 2007, although we expect diminished incremental benefits from competitor store closings,” said Cumberland, who noted that department store closings, led over the past several years by the Macy’s Inc. and May Department Stores Co. merger and Mervyns store closings, should moderate relative to the high levels of the past two years.

Kohl’s, based in Menomonee Falls, Wis., did not return calls for comment. The retailer will also be introducing in September Food Network kitchen products and Elle apparel.

Despite his optimism, Cumberland acknowledged that broad economic indicators would affect the department store’s growth. “I think it’s a clear negative for consumer spending in terms of gas spending and the housing market and my expectation is there will be some impact on Kohl’s results based on those factors,” Cumberland said. “But it is well-positioned against competitors.”