Is Kohl’s Making Money?

Investors are asking if Kohl’s is making money because the discount department store brand is shrinking its locations and partnering with other retailers. Consequently, investors will ask if Kohl’s core business is no longer profitable.

For example, Kohl’s (NYSE: KSS) will share space in some of its stores with gym operator Planet Fitness, a press release indicates. To elaborate, Kohl’s will let some Planet Fitness franchisees lease 20,000 to 25,000 feet in select stores to reduce costs and attract business. The hope is that ladies working out at Planet Fitness will shop at Kohl’s.

Will Partnerships Save Kohl’s from the Retail Apocalypse

In addition, Kohl’s will lease or sell space in 10 stores to fast-growing discount grocer Aldi, reports. Once again, the hope is that the very popular Aldi will lure customers to Kohl’s which is losing market share to Amazon (NASDAQ: AMZN).

Notably, both Aldi and Planet Fitness are growing while the department store business is shrinking. For instance, Aldi is now America’s fourth largest grocer with over 1,800 stores in 35 states and plans for 400 more.

Tellingly, Kohl’s is partnering with Amazon itself by accepting Amazon returns at its service counters in an attempt to lure customers to its stores, NPR reports.  In addition, Kohl’s is exploring partnerships with chains like Best Buy (NYSE: BBY), Barnes & Noble (NYSE: BKS), and PetSmart, reports.

Is Kohl’s Partnering with Other Brands for Survival?

Kohl’s is partnering with other brands for survival. To explain, Kohl’s business is being taken by a massive retail platform known as, Amazon’s resources greatly exceed Kohl’s.

For example, Kohl’s reports annual revenues of $20.23 billion on 31 January 2019. Meanwhile reports annual revenues of $241.54 billion on 31 March 2019. In addition, Amazon reports a net income of $12 billion on 31 March 2019, while Kohl’s reports a net income of $800 million.

Tellingly, Kohl’s had $934 million in cash and equivalents and no short-term investments on 2 February 2019. In contrast, Amazon had $23.115 billion in cash and equivalents and $13.905 billion in short-term investments on 31 March 2019. Thus, Jeff Bezos had $37.02 billion in cash and short-term investments to play with at the end of March.

Kohl’s Partners with Amazon for Survival

Consequently, Kohl’s lacks the money to compete with Amazon. Faced with that menace, Kohl’s has one of two choices, build its own platform for which it lacks the resources, or connect to somebody else’s platform. Consequently, Kohl’s is trying to connect with Amazon’s platform.

Partnering with Amazon is a very smart move for Kohl’s because some of its competitors are trying to build platforms as big and as dangerous as the Everything Store. For instance, Walmart (NYSE: WMT) is making heavy investments in artificial intelligence and robots.

Moreover, Kroger (NYSE: KR) and the Ocado Group PLC (LSE: OCDO) are building robotic fulfillment centers. Tellingly, Kroger sells clothes and some furnishings through its giant Marketplace super centers. Hence, Kroger is a Kohl’s competitor.

Kohl’s Revenue Growth Collapses

Plus, Kohl’s is exploring an expansion into the home decor business by acquiring the homes furnishing retailer At Home, CNBC reports.

My guess, is that this acquisition effort is an attempt to counter the fast-growing discount department store operator TJX Companies (NYSE: TJX). Notably, TJX owns the home furnishings chains HomeGoods, HomeSense, and Sierra. However, TJX has been growing while Kohl’s is struggling.

For instance, TJX records an annual revenue growth rate for 2018 of 8.67%. In contrast, Kohl’s admits to an annual revenue growth rate of 0.72% for 2018.

Moreover, Stockrow estimates Kohl’s revenue growth shrank by 3.32% during the final quarter of 2018. However, TJX’s revenues grew by 1.52% during the last quarter of 2018.

Why Kohl’s wants to enter Home Furnishings

My guess is that TXJ is doing better than Kohl’s because consumers are less likely to order home furnishings online than clothing. To explain, it is easy and cheap to send back a blouse you don’t want. You just stick it in the box and call UPS, or leave it for the letter carrier.

However, returning a lamp or a chair is not that easy. Hence, people still go to a store to look at furniture and decor but don’t buy clothing at physical locations.

Under these circumstances, buying the At Home Group (NYSE: HOME) is a smart move for Kohl’s. Notably the At Home Group is cheap right now with a Market Cap of $1.454 billion and a stock price of $22.84 on 20 May 2019.

Could Kohls make money withRent-A-Center or Sears?

However, partnerships with home furnishings brands like Home Goods; or rental companies like Conn’s (NASDAQ: CONN) or Rent-A-Center (NASDAQ: RCII), could be smarter.

To clarify, I think rental outlets could have more synergy with Kohl’s cash-strapped customers than At home. In particular, Conn’s and Rent-A-Center could attract customers because they sell electronics and appliances in addition to furniture.

Another intriguing partnership is with the bankrupt Sears which is opening smaller stores. In particular, Sears is opening 10,500 to 15,000 square foot Home & Life stores that focus on appliances, tools, mattresses, and outdoor machines like lawnmowers and chain saws.

I think there could be a lot of synergy for Kohl’s with a Sears alliance. Notably Sears and Amazon are partnering on appliance sales. To elaborate a man could shop at Sears for lawn mowers; while his wife or partner shops for clothes at Kohl’s.

Can Kroger Save Kohl’s?

ther partnerships I think Kohl’s should pursue include foodie paradise Trader Joe’s; and its sister store Lidl both of which are expanding; Amazon’s Whole Foods 360, Safeway, Walgreens (NASDAQ: WBA), CVS Health (NYSE: CVS), and Kroger.

Intriguingly, Kroger CEO Randy McMullen wants to put as many shoppers as possible within one mile of a Kroger, Internet Retailer claims. Consequently, a Kroger/Kohl’s team up could be a possibility.

Getting in at the start of Kroger and Ocado’s robot grocery platform could be a clever move for Kohl’s. For instance, shoppers could pick up or return Kroger grocery orders at Kohl’s. In addition, Kohl’s could open smaller stores in Kroger’s Market Places.

Is Kohl’s still Making Money?

In addition, TJX records quarterly revenues of $11.227 billion and a quarterly gross profit of $3.093 billion on 2 February 2019.

Meanwhile, Kohl’s reports quarterly of revenues of $6.823 billion and a gross profit of $2.478 billion for the last quarter of 2018. Ominously, Kohl’s revenues last quarter 2017 revenues of $7.057 billion were higher than those for 2018. Thus, Kohl’s revenues were lower in Christmas season 2018 than in the 2017 holidays.

However, Kohl’s is making money because it reported an operating income of $441 million and a net income of $272 million on 2 February 2019. Moreover Kohl’s generated some cash in form of a $684 million operating cash flow and a $564 free cash flow in February 2019.

Is Kohl’s a good business?

So Kohl’s (NYSE: KSS) makes money but is it a good investment? I would say no because I think Mr. Market overprices Kohl’s at the $63 it traded at on 21 May 2019.

Notably, TJX, which I think is a far better company traded at $52.92 a share on the same day. Thus I think TJX is a value investment and Kohl’s is not.

However, Kohl’s paid a 67₵ dividend on 3 April 2019. Moreover that dividend was up from 61₵ on 26 December 2018. In contrast, TJX will pay a 23₵ dividend on 6 June 2019. However, TJX’s dividend will grow from 19.5₵ on 7 March 2019.

Thus, Kohl’s is a good dividend stock that offered investors a 4.25% dividend yield, an annualized payout of $2.68, and a patio ratio of 49.2% on 17 May 2019. In addition, Kohl’s partnership and home furnishings strategies give it some growth potential. In the final analysis, I consider Kohl’s an interesting dividend stock in retail with a high price.