NEW YORK — Kohl’s Corp. is putting on a new face, and Wall Street analysts like what they see.
Kohl’s gave details of its previously announced five-year plan designed to grow its market share and double sales to $24 billion at an analysts’ meeting in Boston last week. Afterward, the stock of the mid-market retailer was upgraded by one analyst while at least two others reiterated “buy” ratings in flattering research reports. Shares of Kohl’s closed Monday up 0.74 percent to $55.83.
Kohl’s strategy includes building its portfolio of exclusive brands, “reinventing” its floor plan for women’s wear and eyeing new demographics as well as taking on a direct-sourcing business model.
Robert W. Baird & Co. analyst J. David Cumberland upgraded shares of Kohl’s to “outperform” from “neutral” following the meeting with top-level executives from the Menomonee Falls, Wis.-based company. “We came away with greater confidence in Kohl’s ability to drive healthy results through an expanding array of initiatives,” Cumberland said in his note.
In a statement, the retailer said by the end of fiscal year 2010, “Kohl’s plans to operate over 1,200 stores, achieving sales of approximately $24 billion and net income of approximately $1.9 billion.” The company operates about 670 stores today, and has annual sales of $11.7 billion.
Larry Montgomery, chairman and chief executive officer, said in a statement, “We are pleased with the long-term performance of our business model lending confidence and excitement about our future growth plans.”
Montgomery made the presentation to analysts along with Kevin Mansell, president; Arlene Meier, chief operating officer, and Wes McDonald, chief financial officer. The retailer also included a tour of a Kohl’s store in Stoughton, Mass.
Over lunch, more than 250 analysts, who included about 25 sell-side analysts, listened as the retailer reminded them of recent exclusive deals, such as the launch of the American Beauty line with the Estée Lauder Cos. Inc., as well as rolling out brands such as Chaps and Candies. For spring of 2006, the retailer plans to launch Stamp 10 for women and men, an exclusive contemporary brand from Liz Claiborne Inc. Better inventory management and an improved in-store experience also are in the works.
Bill Dreher, Deutsche Bank Equity Research analyst, described the meeting in a research note as “very impressive,” giving him “even stronger conviction that Kohl’s now has the right ‘fashion chemistry,’ in-store experience and new, hip and memorable marketing to drive traffic and sales.” Dreher added that he expects the initiatives to drive earnings per share growth by 18 to 20 percent. He reiterated a “buy” rating on the stock.
“Kohl’s was much more thorough on their long-term plans than they’ve ever been,” Dreher said Monday in an interview. “Wes [McDonald, cfo] really sharpened his pencil.”
Deborah Weinswig, Citigroup Smith Barney analyst, upgraded shares of Kohl’s earlier this month. After the analysts’ meeting in Boston, Weinswig reiterated her “buy” rating. In a 26-page report about the retailer’s growth plan, Weinswig said she believes Kohl’s “is well positioned as a key player in the moderate space, supported by more focused and aggressive marketing.”
Weinswig said Kohl’s will continue to target its core shopper: primarily the 25- to 54-year-old woman. But the analyst said Kohl’s is also looking to gain market share from other demographic segments, including “self-focused explorers,” which is made up of women, aged 25 to 34, who don’t have children, but collectively spend $15 billion to $20 billion a year.
“Kohl’s plans to cater to [new demographic groups] without alienating its existing target group by building on its merchandise offering, improving in-store presentation and experience, and supporting these efforts with a focused and consistent marketing message across all touch points,” Weinswig said.
The merchandise improvement includes a new floor plan in women’s wear, which involves separating the “updated and contemporary” apparel offering (brands such as apt. 9, Axcess, Sonoma Lifestyle, Daisy Fuentes and Nine & Company) from the “classic” brands (Dockers, Haggar and Sag Harbor). This execution would mean a much more delineated merchandise assortment.
Dreher said the women’s wear assortment on the store tour had a less homogenous look. “It had much better editing,” the analyst said.
On the product development front, the analysts said Kohl’s plans to balance the assortment (between basics, fundamentals and fashion, Weinswig said) while infusing the merchandise mix with current color and style trends.
One critical change in product development is how Kohl’s sources goods. Weinswig said the retailer has “its own team of designers and is moving into the fabric business so that it can begin to be involved in the product cycle earlier on.” As a result, Weinswig feels there’s “potential future earnings upside as the company slowly moves towards direct sourcing.”
Kohl’s also affirmed prior sales and earnings guidance during the presentation. For the second half of the year, Kohl’s is looking for comparable-store sales to grow between 4 and 6 percent and gross margins to improve 20 to 30 basis points. The retailer aims to deliver third-quarter EPS of 43 to 46 cents a share, with fourth-quarter EPS in the range of $1.10 to $1.14.