Kohl's (NYSE:KSS) Second Quarter Proves Its Resilience

If it weren't already clear that the retail market is a disaster, the second quarter of 2020 should make that perfectly clear. When stores are required by government mandate to close, and stay closed for several weeks, it's tough for anyone to survive, let alone recover. Kohl's (NYSE:KSS) not only managed to survive the downturn, but it also came out better than several analysts expected.

The Surprisingly Upbeat Downside at Kohl's

The good news is that Kohl's beat estimates across the spectrum. While Wall Street analysts expected the company to lose $0.83 per share, Kohl's came back with losses of just $0.25. It's still a loss, there's no doubt about that, but it's also a smaller loss than anyone expected in the middle of truly catastrophic conditions.

Revenue beat expectations as well, as the company brought in $3.21 billion when it was expected to bring in just $3.09 billion for the quarter. However, the company kept same-store sales figures off the table as many of those stores in question were closed for varying lengths of time.

Kohl's online presence proved its saving grace here, and digital sales were up 58% compared to the same time last year. Online operations made up 41% of total sales in the quarter, as compared to 20% this time last year. Shoppers bought in fairly heavily on all the things that make staying at home worthwhile, including home workout gear, “cozy” clothing including pajamas, and assorted toys.

The Surprisingly Downbeat Upside at Kohl's

The company survived what was easily the worst quarter businesses have seen in decades, and should now be looking forward to recovery, especially as the holiday shopping season comes up and helps propel businesses to profitability. That's why they call it “Black Friday”, after all; the day when retailers put away the red ink of losses and bring out the black ink of profits.

The mood at Kohl's, meanwhile, is subdued at best. With the holiday shopping season still a little under three months out—except for those early birds who like to get it all done quickly—Kohl's doesn't look for quick recovery. Though all its stores are open now, reports note, Kohl's—via its chief executive Michelle Gass—notes that the coronavirus' impact will likely continue to be felt. The company, as a result, is planning “conservatively” for much of the rest of the year, and is actually starting to buy for holiday shopping coverage now so that the products are in play well ahead of schedule.

Facing the Future

The company made substantial gains in premarket trading, but gave much of those gains back as the full picture started to show itself. Essentially, Kohl's understands the place it holds in retail, and that it's going to have a difficult campaign going forward as the economy still attempts to recover from the several weeks—or even several months depending on the state you're looking at—the country spent closed.

Kohl's is in a good position to take this on. It walked away from the second quarter with $2.4 billion in cash available to it, and a half-billion in available credit. GlobalData came out with some positives as well, noting that the company's “good financial management” has put it on very solid ground and given it access to the liquidity it's got on hand. Additionally, GlobalData notes that Kohl's is not a mall-facing retailer of the kind we've seen have problems for months now, and foot traffic is recovering to those stand-alone retailers—or those in strip malls, which aren't so much stand-alone as stand-next-to-two-others—much faster than it is to fully-enclosed mall operations. We actually heard something similar out of Dillard's (NYSE:DDS), where prudent fiscal management gave the company a solid cash position to operate with going forward and also protected against a lot of the losses that the second quarter might have spawned without such measures.

Still, with the economic recovery not looking exactly flush—especially as compared to this time last year—it's easy to see that retailers will feel a loss this time around. People will be to some extent husbanding cash against the next set of lockdowns that may or may not happen but could at literally any time with no visible warning. That's going to hurt Kohl's about as much as it hurts any retailer this year, but with Kohl's management clearly committed to holding the line and protecting the company going forward, it's in about the best position it could be in without opening up a grocery lane.