Kohl’s awarded $100 price target

Give joy, get joy indeed.

US department store operator Kohl’s, which reported strong sales over the holiday period, received a $100 price target on Friday by analysts at Jefferies, who called it a “top retail play in a digital world” and said the company’s shares could rise 50 per cent from current levels.

The Wisconsin-based company had its price target boosted from $66 previously with analysts reiterating their “buy” rating on the stock, as they bumped up their earnings per share forecast for fiscal 2019 to $6.25 and 2020 to $7.50. That handily topped consensus estimates of $4.52 and $4.92 respectively, according to Thomson Reuters data.

“We are buyers of Kohl’s given traction in proprietary brands, share gains from peer closings, thoughtful traffic-driving partnerships (eg, Amazon), omni-channel initiatives, and favourable off-mall real estate,” said Randal Konik, an analyst at Jefferies.

Despite the rosy view, investors were less enthusiastic, sending shares up 1.6 per cent to $65.92

Under Michelle Gass, who is set to succeed Kevin Mansell as chief executive in May, “the proprietary product story has returned to what made Kohl’s special in the early 2000s”, argues Mr Konik.

The time it takes to bring proprietary brands to the shelf has been cut by nearly 30 per cent. Over the holiday period, it was these brands that helped Kohl’s achieve a 6.9 per cent increase in comparable sales. Mr Konik pointed out a pick-up in Google searches for its proprietary brands including Sonoma, Croft & Barrow and Jump Beans and said he expected these in-house brands “present significant top-line opportunity” and “appealing margin potential”.

Mr Konik also argues that the company’s partnership with Amazon — in which the department store sells certain Amazon items and accepts returns at those stores — is a win for both the department store and Jeff Bezos’ e-commerce juggernaut. “We anticipate the pilot to roll out nationally and provide Kohl’s stores with stronger traffic and is a nice added convenience for Amazon shoppers,” he said. Moreover, Kohl’s has executed on multi-platform retail, which helps it lower costs and meet customer demand for “speed and convenience”.

Kohl’s also benefits from having exposure outside of malls, which have lower foot traffic. It is looking to reduce its store count by subleasing to convenience and grocery stores.

The bullish view on Kohl’s comes at a time when department stores and clothing retailers have been bruised by a shift to e-commerce and falling mall traffic even as US consumer spending remains healthy.

Kohl’s shares are up 22 per cent so far this year, following a near 10 per cent gain in 2017.